Dissolution of a domestic corporation can be achieved by the shareholders on consent, via judicial Order pursuant to Business Corporation Law § 1104-a, or in accordance with Tax Law § 203-a when the New York Secretary of State effectuates a dissolution by proclamation, and annuls the corporation’s authority to conduct business, as a result of the corporation’s failure to file tax returns and/or pay franchise taxes. No matter the means of dissolution, the corporation is nonetheless entitled to wind up its affairs and sell its assets. More specifically, BCL § 1005, entitled “Procedure After Dissolution” provides:
(a) After dissolution:
(1) The corporation shall carry on no business except for the purpose of winding up its affairs.
(2) The corporation shall proceed to wind up its affairs, with power to fulfill or discharge its contracts, collect its assets, sell its assets for cash at public or private sale, discharge or pay its liabilities, and do all other acts appropriate to liquidate its business.
However, despite the fact that a corporation is legally entitled to sell its assets, the authority to act does not serve to undermine a shareholder agreement which provides that majority vote is required to act. Indeed, Business Corporation Law § 614,1 entitled “Vote of Shareholders” provides as follows:
(b) Whenever any corporate action, other than the election of directors, is to be taken under this chapter by vote of the shareholders, it shall, except as otherwise required by this chapter or by the certificate of incorporation as permitted by this chapter or by the specific provisions of a by-law adopted by the shareholders, be authorized by a majority of the votes cast in favor of or against such action at a meeting of shareholders by the holders of shares entitled to vote thereon. Except as otherwise provided in the certificate of incorporation or the specific provision of a by-law adopted by the shareholders, an abstention shall not constitute a vote cast [underlining added].
Indeed, the BCL confirms that dissolution of a corporation does not affect the majority vote requirement of a Shareholders’ Agreement or the Business Corporation Law § 614 requirements. More specifically, BCL § 1006(a)(2) provides:
(a) A dissolved corporation, its directors, officers and shareholders may continue to function for the purpose of winding up the affairs of the corporation in the same manner as if the dissolution had not taken place, except as otherwise provided in this chapter or by court order. In particular, and without limiting the generality of the foregoing:
(2) Dissolution shall not change quorum or voting requirements for the board or shareholders, or provisions regarding election, appointment, resignation or removal of, or filling vacancies among, directors or officers, or provisions regarding amendment or repeal of by-laws or adoption of new by-laws.
Assume that post-dissolution, a corporation is working to “wind up” its affairs by selling assets, but is unable to achieve a majority (or super-majority) vote in accordance with BCL § 614(b) or a Shareholders’ Agreement? As a practical matter, any conduct of the corporation that was achieved without a majority vote would likely be subject to attack. In such an instance, the shareholder (or shareholders) may petition the Supreme Court to supervise the liquidation process. For example, BCL § 1008(a) permits the Supreme Court to supervise the liquidation of a corporation and make Orders in connection with the winding up of the corporation’s affairs:
(a) At any time after the filing of a certificate of dissolution under this article the supreme court in the judicial district where the office of the corporation was located at the date of its dissolution, in a special proceeding instituted under this section, upon the petition of the corporation, or, in a situation approved by the court, upon the petition of a creditor, claimant, director, officer, shareholder, subscriber for shares, incorporator or the attorney-general, may suspend or annul the dissolution or continue the liquidation of the corporation under the supervision of the court and may make all such orders as it may deem proper in all matters in connection with the dissolution or the winding up of the affairs of the corporation… [underlining added].
Indeed, BCL § 1009 confirms that the supervision mechanism is available for a Tax Law § 203-a dissolution:
1009. Applicability to dissolution under other provisions.
The provisions of sections 1005 (Procedure after dissolution), 1006 (Corporate action and survival of remedies after dissolution), 1007 (Notice to creditors; filing or barring claims) and 1008 (Jurisdiction of supreme court to supervise dissolution and liquidation) shall apply to a corporation dissolved by expiration of its period of duration or under section two hundred three-a of the tax law.
Upon dissolution, the BCL provides a pragmatic means to effectuate, inter alia, the liquidation of a corporation’s assets in a court-supervised manner, thereby shielding shareholders, and their counsel, from allegations that decisions were made, and conduct performed, in an ultra vires manner.
- It is important to take into account, however, that BCL § 614 makes an exception to the majority vote required where corporation action is governed by specific provisions in the certificate of incorporation or by the bylaws adopted by the shareholders (i.e. a super-majority provision).