Dissolved/De facto Corporations - Issue 2

"The dissolution of a corporation shall not affect any remedy available to or against such corporation, its directors, officers or shareholders for any right or claim existing or any liability incurred before such dissolution. NY Business Corporation §1006

At any time after dissolution, the corporation may give a notice requiring all creditors and claimants, including any with unliquidated or contingent claims and any with whom the corporation has unfulfilled contracts, to present their claims. Any claims which shall have been filed as provided in such notice and which shall be disputed by the corporation may be submitted for determination to the supreme court. The claim of any person and all other claims which are not timely filed except claims which are the subject of litigation on the date of the first publication of the notice, and all claims that are disallowed by the court are forever barred as against the corporation, its assets, directors, officers and shareholders, with limited exceptions. NY Business Corporation §1007 "

New York law is split regarding the personal liability of officers/directors for actions taken by a dissolved corporation. There is a line of authority emanating from Poritzky v. Wachtel, 176 Misc. 633, 27 N.Y.S.2d 316 (Sup. Ct. Put. Co. 1941) which holds that officers and directors are liable, based upon a two-fold public policy rationale. See e.g., Animazing Enter., Inc. v. Louis Lofredo Assocs., Inc., 88 F.Supp.2d 265, 271 (S.D.N.Y. 2000); Brandes Meat Corp. v. Cromer, 146 A.D.2d 666, 537 N.Y.S.2d 177 (2d Dep't 1989); Lorisa Capital Corp. v. Gallo, 119 A.D.2d 99, 506 N.Y.S.2d 62, 70-71 (2d Dep't 1986). First, in most cases involving this issue, dissolution was statutory as the result of the corporation's failure to pay NYS franchise taxes. Effectuating statutory dissolution and imposing personal liability on the dissolved corporation's officers and directors for actions taken by the corporation while dissolved, is believed to encourage the voluntary payment of franchise taxes. See Lorisa, 506 N.Y.S.2d at 70-72. Second, holding the officers and directors personally liable is intended to discourage fraud and bad faith. Animazing, 88 F. Supp.2d at 271; Poritzky, 27 N.Y.S.2d at 318.

There is a contrary line of authority which expressly distinguishes the first and finds no personal liability. LTec Elec. Corp. v. Cougar Elec. Org., Inc., 198 F.3d 85, 86-87 (2d Cir. 1999); Prentice Corp. v. Martin, 624 F. Supp. 1114, 1115-16 (E.D.N.Y. 1986); Bedford Hills Supply, Inc. v. Hubert, 251 A.D.2d 438, 674 N.Y.S.2d 404, 405 (2d Dep't 1998)(individuals not personally liable where they did not have actual knowledge of the dissolution); Department 56, Inc. v. Bloom, 186 Misc.2d 901, 720 N.Y.S.2d 920, 922-23 (Sup. Ct. Rich. Co. 2001)("Seductive though it may be, the Poritzky rationale is fallacious, and I respectfully choose not to follow it. Neither Poritzky nor the cases adopting its holding explain why such fraud and abuse would be encouraged").

Reinstatement of the corporation's status by the payment of delinquent franchise taxes after an action is filed, has been held not to relieve the officers, directors or shareholders from personal liability for actions taken during dissolution and sued upon. WorldCom, Inc. v. Sandoval, 182 Misc.2d 1021, 701 N.Y.S.2d 834 (Sup. Ct. N.Y. Cty. 1999).