Bankruptcy Court's Ruling Does Not Establish "Floor" Value in Subsequent Stock Appraisal Proceeding
When bankruptcy interrupts corporate dissolution proceedings, it usually means bad news for the petitioner. For instance, last year I wrote about a petition for corporate dissolution doomed by the petitioner's failure to disclose his stock interest in prior bankruptcy proceedings. A recent decision presents an interesting departure from the norm, involving a dissolution case commenced in 1990 that took a 10-year detour through bankruptcy court before returning to state court to resume a buyout proceeding. The case, Smith v. Russo, 2009 NY Slip Op 32785(U) (Sup Ct Queens County Nov. 13, 2009), raised the question whether the bankruptcy court's basis for rejecting as inadequate a buyout settlement proposed by the bankruptcy trustee should be given collateral estoppel effect -- for the benefit of the former bankrupt -- in the subsequent state court valuation proceeding.
Husband and wife Richard and Nelsi Smith were 27.5% shareholders of Meadow Mechanical Corporation formed in 1980. In 1990, the other shareholders removed Richard as president and barred both Smiths from the business premises, prompting the Smiths to sue for dissolution under Section 1104-a of the Business Corporation Law. The other shareholders then elected to purchase the Smiths' shares for fair value under BCL Section 1118.
Continue Reading...Failure to Disclose Stock Interest in Bankruptcy Petition Defeats Standing in Later Dissolution Proceeding
It's not often that bankruptcy law intersects with corporate dissolution proceedings based on deadlock or minority shareholder oppression, but when it does, likely it's bad news for the petitioner seeking to liquidate the company or to be bought out by another shareholder.
Such was the fate of the plaintiff in a recently decided dissolution case called Light v. Boussi, 2008 NY Slip Op 51212(U) (Sup Ct Kings County June 19, 2008). In 2006, plaintiff Beril Light sued Samuel Boussi for an accounting, imposition of constructive trust, damages and an order compelling dissolution of a real estate holding company formed in 1995 called 10-18, Inc. Light claimed that he and Boussi were 50-50 shareholders. Light alleged that Boussi failed to maintain corporate formalities, provide him with notice of corporate meetings or financial information, or distribute to Boussi 50% of the company profits. Boussi denied that Light ever was a shareholder and also asserted as affirmative defenses that Light lacked legal capacity to sue, and that Light's claims were barred by the doctrine of judicial estoppel.
Both defenses arose from the fact that in 1998, Light and his wife filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Their petition listed various assets owned by them including real properties and interests in stock corporations, but made no mention of 10-18, Inc. The bankruptcy court entered a final decree in 2002, Light's bankruptcy case was closed, and the trustee was discharged.
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