When an insider has taken company money, the civil route is about recovery, and it does not depend on anyone being prosecuted. Where the person owed duties to the company, D.C. Code § 29–804.09(b)(1) requires them to account and to hold as trustee any property, profit or benefit derived — which shifts the argument from proving theft to requiring an account. Where the money has been moved on, §§ 28–3104 to 28–3107 allow the transfers to be attacked and provide for avoidance, attachment, injunctions and a receiver.
The duty to account
An insider who takes company property holds it as trustee for the company, because the statutory duty of loyalty requires accounting for any property, profit, or benefit derived from the company or its opportunities.
(b) The duty of loyalty of a member in a member-managed limited liability company shall include the duties to: (1) Account to the company and to hold as trustee for it any property, profit, or benefit derived by the member: (A) In the conduct or winding up of the company’s activities and affairs; (B) From a use by the member of the company’s property; or (C) From the appropriation of a limited liability company opportunity; (2) Refrain from dealing with the company in the conduct or winding up of the company’s activities and affairs as or on behalf of a person having an interest adverse to the company; and (3) Refrain from competing with the company in the conduct of the company’s activities and affairs before the dissolution of the company.
D.C. Code § 29–804.09(b)
The partnership analogue is § 29–604.07. See breach of fiduciary duty.
Following the money
Where the money has already moved on, the transfer itself becomes the target — a transfer made with actual intent to hinder, delay, or defraud a creditor is attackable in its own right.
(a) A transfer made, or obligation incurred, by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay, or defraud any creditor of the debtor; or (2) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (B) Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.
D.C. Code § 28–3104(a)
Remedies, including appointment of a receiver over the transferred asset, are at § 28–3107(a) — see creditor and debtor disputes and court-appointed receiverships.
Civil recovery and a criminal referral are different decisions
A civil claim recovers money. A referral hands the matter to prosecutors, with consequences for control, timing and disclosure that the company should weigh deliberately rather than reflexively. Where the facts need establishing internally first, see internal investigations.
⚠️ Whether to make a criminal referral is a decision with significant consequences and should be taken with advice on the specific facts.
Deadlines
| Claim | Period | Section |
|---|---|---|
| Recovery of personal property or damages for unlawful detention | 3 years | § 12–301(2) |
| Not otherwise specially prescribed | 3 years | § 12–301(8) |
| Simple contract | 3 years | § 12–301(7) |
| Fraudulent transfer | See extinguishment provision | § 28–3109 |
Frequently asked questions
Do we have to report it to the police to recover the money?
No. Civil recovery is independent of any prosecution, and the decision whether to refer is separate.
What if the money has already been spent or moved?
The fraudulent-transfer sections address transfers to third parties, and § 28–3107 provides avoidance, attachment, injunctions and appointment of a receiver, subject to § 28–3108.
The person was an employee, not an owner. Does the duty to account apply?
§ 29–804.09 addresses members and managers. Against an employee the claim is framed differently, though the tracing remedies remain available.
Can we act before we know the full picture?
Often yes — provisional remedies exist for that purpose, and an internal investigation can run alongside.
Who holds the claim when the wrongdoer is an owner?
Usually the company. A member may nonetheless sue in their own name where D.C. Code § 29–808.01 applies, which permits a direct action to enforce the member’s own rights provided the member pleads and proves an injury that is not solely an injury to the company.
Why pursue civil recovery at all if a prosecution looks likely?
Because a prosecution punishes and a civil action recovers. The timing, the charging decision and any restitution order sit with the government, whereas the civil claim and any tracing remedy remain under the company’s control.
When should a claim against the transfer be brought?
As soon as the movement of assets is identified. The remedies in D.C. Code § 28–3107 operate on the asset — avoidance, attachment and an injunction against further disposition all depend on there still being something to reach.
Where are these claims heard?
In the Superior Court of the District of Columbia under D.C. Code § 11–921. That is also the court that may appoint a receiver or custodian under § 29–312.22 where the entity itself needs protecting rather than merely restraining a person.
How does a company trace value into a third party’s hands?
Through the fraudulent transfer provisions. Section 28–3107 permits avoidance of the transfer to the extent necessary to satisfy the claim, an attachment against the transferred asset or other property of the transferee, and an injunction against further disposition by either the debtor or the transferee.
Can the company recover its legal fees?
Only where a statute or the parties’ contract shifts them; there is no general loser-pays rule. A fee provision in an operating agreement or employment contract is frequently what separates a claim worth bringing from one that is not.
Sources and legal authorities
- D.C. Code § 29–804.09 — Standards of conduct for members and managers
- D.C. Code § 29–604.07 — General standards of partner’s conduct
- D.C. Code § 28–3104 — Transfers fraudulent as to present and future creditors
- D.C. Code § 28–3107 — Remedies of creditors
- D.C. Code § 28–3109 — Extinguishment
- D.C. Code § 12–301 — Limitation of actions
General information about D.C. law, not legal advice. Which rule applies depends on the entity, the agreement and the facts.
Related: Partner Diverting Company Funds · Breach of Fiduciary Duty · Creditor / Debtor Disputes · Internal Investigations · Court-Appointed Receiverships · Business Litigation. Call (301) 901-3109 or use the contact page.