October 28, 2021

Volume XI, Number 301

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Actions Against Shareholders Of Dissolved Corporations (Part III)

Today's post follows up on two prior posts addressing actions by creditors of dissolved corporations.  This post discusses the non-applicability of Chapter 5 of the California General Corporation Law to proceedings for winding up under Chapters 18 or 19 of the law.   Last Thursday's post discussed Section 2009 which allows creditors to bring suit in the name of the corporation whenever in the process of winding up, distribution of assets has been made, other than under court order, without prior payment or adequate provision for payment of any of the "debts and liabilities" of the corporation. 

While Section 2009 which provides for suits to be brought in the name of the corporation, Section 2011 of the Corporations Code authorizes causes of action against a dissolved corporation, regardless of whether the cause of action arose before or after the dissolution of the corporation.  The action may be enforced against (i) the corporation to the extent of its undistributed assets (including insurance),  and (ii)  the shareholders if any of the assets have been distributed to them.  Enforcement against the shareholders is limited to the extent of their pro-rata share of the claim or the assets distributed to them upon dissolution, whichever is less.   A shareholder's total liability under Section 2011 cannot exceed the total amount distributed to the shareholder upon dissolution.

Section 2011, unlike Section 2009,  imposes its own deadline for claims.  Except for quiet title actions, all causes of action against a shareholder of a dissolved corporation arising under Section 2011 are extinguished unless the claimant commences a proceeding to enforce the cause of action against the shareholder before the earlier of: (i) the expiration of the statute of limitations applicable to the cause; and (ii) four years after the effective date of the dissolution.

Notably, Section 2011 does not affect the rights, if any, of the corporation or its creditors under Section 2009, or the rights, if any of creditors under the Uniform Voidable Transactions Act which may arise against the shareholders.

© 2010-2021 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 229
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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