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What are your legal options when a partner steals from the business?

By Jonathan Mesiano-Crookston |

Joe asked:

Say you have a business and one partner has stolen a couple hundred thousand and that same partner's dad is the book keeper and basically drove the company to bankruptcy, what can be done?

Jonathan Mesiano-Crookston answered:

This question asked is short, but it sounds, from what little detail is given, that at least two things are going on.

First, it sounds like a partner stole quite a bit of money from a business. While it is unclear whether the business was being run as a partnership or a corporation, it likely doesn't matter, as the so-called "partner" sounds like one of the key people operating the business. Therefore, whether he or she is a "partner" of a true partnership, or a "director" or "officer" of a corporate entity, the result will likely be the same, and that person will likely be liable for theft of the money.

This is because both partners (of partnerships) and directors and officers (of corporations) owe their partnerships and corporations what we lawyers refer to as "fiduciary duties", which represent the highest and most onerous obligations that one person can owe another at law. Fiduciaries must always act in each others' best interests, and cannot take for their own advantage anything belonging to the people to whom they owe their duties. Besides partners and directors/officers, other examples of fiduciaries are

  • agents (people who act on another person's behalf - for example, a real estate agent and the person buying the home),
  • professionals (who owe duties to their clients), and
  • trustees (who owe duties to the beneficiaries of the trust).

It seems on the facts described that not only would there be a clear civil case against the "partner" for theft of the money, but that the partner, in stealing the money, would very likely be found to have breached his or her fiduciary duties to the partnership/corporation. Assuming the theft was proven in court, the money would very likely be ordered returned, as well as any other gains from the theft. If the theft resulted in the business going bankrupt, as the question implies, a claim might be made out that the damages were the value of the business, which could substantially increase the size of any claim against the thief.

Furthermore, the above discussion is about a civil lawsuit for theft. The partnership/corporation may also decide to alert the police, provide evidence of the theft, and allow the police to decide whether the evidence supports charging the "partner" with criminal theft. In this case, the partnership/corporation's role will simply be to provide the evidence within its knowledge, and the police will decide to, or not to, lay charges. If charges are laid, the crown prosecutor will decide whether there is enough evidence to continue the charges against the accused and go to trial. However, criminal charges are only started by the partnership/corporation, but are not controlled by it. Furthermore, the partnership/corporation will not receive its losses back through the criminal justice system. This is why, after criminal trials, victims often bring civil claims against the accused to recover financial losses.

Second, there is the issue of the father, who was the partnership's bookkeeper. The liability of the father will depend entirely on what he knew about what was going on, and what he assisted his son to do, if anything.

If the father was complicit in the theft - by covering for his son, for example - then the father would very likely be liable for conspiring with his son to steal the money.

If the father was simply the bookkeeper at a time when his son, unbeknownst to him, was stealing money, then it is unlikely that the partnership/corporation can recover against the father. However, the partnership/corporation will want to obtain legal assistance and analyse the facts of the situation very carefully to determine whether the father owed it a duty as its bookkeeper to watch for theft, and whether he ought to have detected the theft and warned someone. Again, this paragraph assumes the father was not involved in the theft.

I hope this answer provides some ideas as to possible actions and recoveries. Given how important the question, and how very small factual changes in the situation might drastically change what the partnership/corporation ought to do, I strongly encourage the business owners to seek proper legal advice about this situation, and not rely on my general comments above, which are for discussion only.

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