When Winding Up A Corporation Don't Do This

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I don't know any lawyers who specialize in winding up corporations, but if any of you are out there, you should read this post.

It is important to remember, when winding up a corporation, that "principals and directors of a corporation owe a fiduciary duty to creditors of the corporation when the corporation is insolvent and 'under circumstances amounting to a "winding up" or dissolution of the corporation.'"  Order ¶6.

In an Order entered last week in Americana Development, Inc. v. Ebius Trading & Distributing Co., Judge Jolly entered a TRO against a financially troubled corporation preventing it from paying debts that had been guaranteed by its principals and officers to the exclusion of its other debts.

In granting a Temporary Restraining Order, Judge Jolly said that the individuals were:

using their positions as principals and officers of [Ebius and its parent corporation] to secure a personal benefit by satisfying only those debts for which they are personally liable.  If Defendants are permitted to favor only those creditors whose debts are personally guaranteed, Plaintiff, as a non-guaranteed creditor of Defendants, would be at risk of significant injury as its claim would go wholly unsatisfied as a result of the improper distribution by [the individuals].  The injury caused by the improper liquidation of Defendants' assets would be irreparable.

Op. ¶7.

The Defendants were enjoined from paying the debts on which Ebius was not liable, and also from paying any of the corporation's debts other than on a pro rata basis.

Congratulations to my colleague Clint Morse  for obtaining this result for the Plaintiff.

Topics:  Board of Directors, Breach of Duty, Fiduciary Duty, Insolvency

Published In: Bankruptcy Updates, Civil Remedies Updates, General Business Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Brooks Pierce | Attorney Advertising

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