New York
Business Corporation Law
Article 11, NYBCL Judicial Dissolution
Section
1101. Attorney-general`s action for judicial dissolution.
1102. Directors` petition for judicial dissolution.
1103. Shareholders` petition for judicial dissolution.
1104. Petition in case of deadlock among directors or
shareholders.
1104-a. Petition for judicial dissolution under special
circumstances.
1105. Contents of petition for judicial dissolution.
1106. Order to show cause; issuance, publication, service,
filing.
1107. Amending papers.
1108. Referee.
1109. Hearing and decision.
1110. Application for final order.
1111. Judgment or final order of dissolution.
1112. Venue.
1113. Preservation of assets; appointment of receiver.
1114. Certain sales, transfers, security interests and
judgments void.
1115. Injunction.
1116. Discontinuance of action or special proceeding.
1117. Applicability of other provisions.
1118. Purchase of petitioner`s shares; valuation.
S 1101. Attorney-general`s action for judicial dissolution.
(a) The attorney-general may bring an action for the dissolution of a
corporation upon one or more of the following grounds:
(1) That the corporation procured its formation through fraudulent
misrepresentation or concealment of a material fact.
(2) That the corporation has exceeded the authority conferred upon it
by law, or has violated any provision of law whereby it has forfeited
its charter, or carried on, conducted or transacted its business in a
persistently fraudulent or illegal manner, or by the abuse of its powers
contrary to the public policy of the state has become liable to be
dissolved.
(b) An action under this section is triable by jury as a matter of
right.
(c) The enumeration in paragraph (a) of grounds for dissolution shall
not exclude actions or special proceedings by the attorney-general or
other state officials for the annulment or dissolution of a corporation
for other causes as provided in this chapter or in any other statute of
this state.
S 1102. Directors` petition for judicial dissolution.
If a majority of the board adopts a resolution that finds that the
assets of a corporation are not sufficient to discharge its liabilities
or that a dissolution will be beneficial to the shareholders, it may
present a petition for its dissolution.
S 1103. Shareholders` petition for judicial dissolution.
(a) If the shareholders of a corporation adopt a resolution stating
that they find that its assets are not sufficient to discharge its
liabilities, or that they deem a dissolution to be beneficial to the
shareholders, the shareholders or such of them as are designated for
that purpose in such resolution may present a petition for its
dissolution.
(b) A shareholders` meeting to consider such a resolution may be
called, notwithstanding any provision in the certificate of
incorporation, by the holders of shares representing ten percent of the
votes of all outstanding shares entitled to vote thereon, or if the
certificate of incorporation authorizes a lesser proportion of votes of
shares to call the meeting, by such lesser proportion. A meeting under
this paragraph may not be called more often than once in any period of
twelve consecutive months.
(c) Such a resolution may be adopted at a meeting of shareholders by
vote of a majority of the votes of all outstanding shares entitled to
vote thereon or if the certificate of incorporation requires a greater
proportion of votes to adopt such a resolution, by such greater
proportion.
S 1104. Petition in case of deadlock among directors or shareholders.
(a) Except as otherwise provided in the certificate of incorporation
under section 613 (Limitations on right to vote), the holders of shares
representing one-half of the votes of all outstanding shares of a
corporation entitled to vote in an election of directors may present a
petition for dissolution on one or more of the following grounds:
(1) That the directors are so divided respecting the management of the
corporation`s affairs that the votes required for action by the board
cannot be obtained.
(2) That the shareholders are so divided that the votes required for
the election of directors cannot be obtained.
(3) That there is internal dissension and two or more factions of
shareholders are so divided that dissolution would be beneficial to the
shareholders.
(b) If the certificate of incorporation provides that the proportion
of votes required for action by the board, or the proportion of votes of
shareholders required for election of directors, shall be greater than
that otherwise required by this chapter, such a petition may be
presented by the holders of shares representing more than one-third of
the votes of all outstanding shares entitled to vote on non-judicial
dissolution under section 1001 (Authorization of dissolution).
(c) Notwithstanding any provision in the certificate of incorporation,
any holder of shares entitled to vote at an election of directors of a
corporation, may present a petition for its dissolution on the ground
that the shareholders are so divided that they have failed, for a period
which includes at least two consecutive annual meeting dates, to elect
successors to directors whose terms have expired or would have expired
upon the election and qualification of their successors.
S 1104-a. Petition for judicial dissolution under special circumstances.
(a) The holders of shares representing twenty percent or more of the
votes of all outstanding shares of a corporation, other than a
corporation registered as an investment company under an act of congress
entitled "Investment Company Act of 1940", no shares of which are listed
on a national securities exchange or regularly quoted in an
over-the-counter market by one or more members of a national or an
affiliated securities association, entitled to vote in an election of
directors may present a petition of dissolution on one or more of the
following grounds:
(1) The directors or those in control of the corporation have been
guilty of illegal, fraudulent or oppressive actions toward the
complaining shareholders;
(2) The property or assets of the corporation are being looted,
wasted, or diverted for non-corporate purposes by its directors,
officers or those in control of the corporation.
(b) The court, in determining whether to proceed with involuntary
dissolution pursuant to this section, shall take into account:
(1) Whether liquidation of the corporation is the only feasible means
whereby the petitioners may reasonably expect to obtain a fair return on
their investment; and
(2) Whether liquidation of the corporation is reasonably necessary for
the protection of the rights and interests of any substantial number of
shareholders or of the petitioners.
(c) In addition to all other disclosure requirements, the directors or
those in control of the corporation, no later than thirty days after the
filing of a petition hereunder, shall make available for inspection and
copying to the petitioners under reasonable working conditions the
corporate financial books and records for the three preceding years.
(d) The court may order stock valuations be adjusted and may provide
for a surcharge upon the directors or those in control of the
corporation upon a finding of wilful or reckless dissipation or transfer
of assets or corporate property without just or adequate compensation
therefor.
S 1105. Contents of petition for judicial dissolution.
A petition for dissolution shall specify the section or sections of
this article under which it is authorized and state the reasons why the
corporation should be dissolved. It shall be verified by the petitioner
or by one of the petitioners.
S 1106. Order to show cause; issuance; publication, service, filing.
(a) Upon the presentation of such a petition, the court shall make an
order requiring the corporation and all persons interested in the
corporation to show cause before it, or before a referee designated in
the order, at a time and place therein specified, not less than four
weeks after the granting of the order, why the corporation should not be
dissolved. In connection therewith, the court may order the corporation,
its officers and directors, to furnish the court with a schedule of all
information, known or ascertainable with due diligence by them, deemed
pertinent by the court, including a statement of the corporate assets
and liabilities, and the name and address of each shareholder and of
each creditor and claimant, including any with unliquidated or
contingent claims and any with whom the corporation has unfulfilled
contracts.
(b) A copy of the order to show cause shall be published as prescribed
therein, at least once in each of the three weeks before the time
appointed for the hearing thereon, in one or more newspapers, specified
in the order, of general circulation in the county in which the office
of the corporation is located at the date of the order.
(c) A copy of the order to show cause shall be served upon the state
tax commission and the corporation and upon each person named in the
petition, or in any schedule provided for in paragraph (a), as a
shareholder, creditor or claimant, except upon a person whose address is
stated to be unknown, and cannot with due diligence be ascertained by
the corporation. The service shall be made personally, at least ten days
before the time appointed for the hearing, or by mailing a copy of the
order, postage prepaid, at least twenty days before the time so
appointed, addressed to the person to be served at his last known
address.
(d) A copy of the order to show cause and the petition shall be filed,
within ten days after the order is entered, with the clerk of the county
where the office of the corporation is located at the date of the order.
A copy of each schedule furnished to the court under this section shall,
within ten days thereafter, be filed with such clerk.
(e) Publication, service and filing provided for in this section shall
be effected by the corporation or such other persons as the court may
order.
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S 1107. Amending papers.
At any stage, before final order, the court may grant an order
amending the petition or any other paper filed in the action or special
proceeding, with like effect as though originally filed as amended, or
otherwise as the court may direct.
S 1108. Referee.
If a referee was not designated in the order to show cause, the court,
in its discretion, may appoint a referee when or after the order is
returnable. The court may at any time appoint a successor referee.
S 1109. Hearing and decision.
At the time and place specified in the order to show cause, or at any
other time and place to which the hearing is adjourned, the court or the
referee shall hear the allegations and proofs of the parties and
determine the facts. The decision of the court or the report of the
referee shall be made and filed with the clerk of the court with all
convenient speed.
S 1110. Application for final order.
When the hearing is before a referee, a motion for a final order must
be made to the court upon notice to each party to the action or special
proceeding who has appeared therein. The notice of motion may be served
as prescribed for the service of papers upon an attorney in an action in
such court. When the hearing is before the court, a motion for a final
order may be made at the hearing or at such time and upon such notice as
the court prescribes.
S 1111. Judgment or final order of dissolution.
(a) In an action or special proceeding under this article if, in the
court`s discretion, it shall appear that the corporation should be
dissolved, it shall make a judgment or final order dissolving the
corporation.
(b) In making its decision, the court shall take into consideration
the following criteria:
(1) In an action brought by the attorney-general, the interest of the
public is of paramount importance.
(2) In a special proceeding brought by directors or shareholders, the
benefit to the shareholders of a dissolution is of paramount importance.
(3) In a special proceeding brought under section 1104 (Petition in
case of deadlock among directors or shareholders) or section 1104-a
(Petition for judicial dissolution under special circumstances)
dissolution is not to be denied merely because it is found that the
corporate business has been or could be conducted at a profit.
(c) If the judgment or final order shall provide for a dissolution of
the corporation, the court may, in its discretion, provide therein for
the distribution of the property of the corporation to those entitled
thereto according to their respective rights.
(d) The clerk of the court or such other person as the court may
direct shall transmit certified copies of the judgment or final order of
dissolution to the department of state and to the clerk of the county in
which the office of the corporation was located at the date of the
judgment or order. Upon filing by the department of state, the
corporation shall be dissolved.
(e) The corporation shall promptly thereafter transmit a certified
copy of the judgment or final order to the clerk of each other county in
which its certificate of incorporation was filed.
S 1112. Venue.
An action or special proceeding under this article shall be brought in
the supreme court in the judicial district in which the office of the
corporation is located at the time of the service on the corporation of
a summons in such action or of the presentation to the court of the
petition in such special proceeding.
S 1113. Preservation of assets; appointment of receiver.
At any stage of an action or special proceeding under this article,
the court may, in its discretion, make all such orders as it may deem
proper in connection with preserving the property and carrying on the
business of the corporation, including the appointment and removal of a
receiver under article 12 (Receivership), who may be a director, officer
or shareholder of the corporation.
S 1114. Certain sales, transfers, security interests and judgments void.
A sale, mortgage, conveyance or other transfer of, or the creation of
a security interest in, any property of a corporation made, without
prior approval of the court, after service upon the corporation of a
summons in an action, or of an order to show cause in a special
proceeding, under this article in payment of or as security for an
existing or prior debt or for any other or for no consideration, or a
judgment thereafter rendered against the corporation by confession or
upon the acceptance of any offer, shall be void as against such persons
and to such extent, if any, as the court shall determine.
S 1115. Injunction.
(a) At any stage of an action or special proceeding under this
article, the court may, in its discretion, grant an injunction,
effective during the pendency of the action or special proceeding or
such shorter period as it may specify in the injunction, for one or more
of the following purposes:
(1) Restraining the corporation and its directors and officers from
transacting any unauthorized business and from exercising any corporate
powers, except by permission of the court.
(2) Restraining the corporation and its directors and officers from
collecting or receiving any debt or other property of the corporation,
and from paying out or otherwise transferring or delivering any property
of the corporation, except by permission of the court.
(3) Restraining the creditors of the corporation from beginning any
action against the corporation, or from taking any proceedings in an
action theretofore commenced, except by permission of the court. Such
injunction shall have the same effect and be subject to the same
provisions of law as if each creditor upon whom it is served was named
therein.
S 1116. Discontinuance of action or special proceeding.
An action or special proceeding for the dissolution of a corporation
may be discontinued at any stage when it is established that the cause
for dissolution did not exist or no longer exists. In such event, the
court shall dismiss the action or special proceeding and direct any
receiver to redeliver to the corporation all its remaining property.
S 1117. Applicability of other provisions.
(a) Subject to the provisions of this article, 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 under this article.
(b) Any orders provided for in section 1008, may be made at any stage
of an action or special proceeding for dissolution of a corporation
under this article, and if the corporation is dissolved under this
article, the court may retain jurisdiction for the purpose of making
such orders, after the dissolution, in such action or special
proceeding. The court may also make such orders in separate special
proceedings, as provided in section 1008.
(c) Notice to creditors and claimants, provided for in section 1007,
may also be given, by order of the court, at any stage of an action or
special proceeding for dissolution of a corporation under this article.
S 1118. Purchase of petitioner`s shares; valuation.
(a) In any proceeding brought pursuant to section eleven hundred
four-a of this chapter, any other shareholder or shareholders or the
corporation may, at any time within ninety days after the filing of such
petition or at such later time as the court in its discretion may allow,
elect to purchase the shares owned by the petitioners at their fair
value and upon such terms and conditions as may be approved by the
court, including the conditions of paragraph (c) herein. An election
pursuant to this section shall be irrevocable unless the court, in its
discretion, for just and equitable considerations, determines that such
election be revocable.
(b) If one or more shareholders or the corporation elect to purchase
the shares owned by the petitioner but are unable to agree with the
petitioner upon the fair value of such shares, the court, upon the
application of such prospective purchaser or purchasers or the
petitioner, may stay the proceedings brought pursuant to section 1104-a
of this chapter and determine the fair value of the petitioner`s shares
as of the day prior to the date on which such petition was filed,
exclusive of any element of value arising from such filing but giving
effect to any adjustment or surcharge found to be appropriate in the
proceeding under section 1104-a of this chapter. In determining the fair
value of the petitioner`s shares, the court, in its discretion, may
award interest from the date the petition is filed to the date of
payment for the petitioner`s share at an equitable rate upon judicially
determined fair value of his shares.
(c) In connection with any election to purchase pursuant to this
section:
(1) If such election is made beyond ninety days after the filing of
the petition, and the court allows such petition, the court, in its
discretion, may award the petitioner his reasonable expenses incurred in
the proceeding prior to such election, including reasonable attorneys`
fees;
(2) The court, in its discretion, may require, at any time prior to
the actual purchase of petitioner`s shares, the posting of a bond or
other acceptable security in an amount sufficient to secure petitioner
for the fair value of his shares.