Most business co-owners prefer to keep their internal disputes private, lest competitors get a whiff and take advantage with the customers, or because it might give customers or suppliers an excuse to back out of pending deals.  When an owner goes to court to ask for judicial dissolution of the business, however, thanks to statutory publication requirements and internet access to court filings, the whole world is watching.

Section 1106 of the Business Corporation Law (BCL) requires the court, upon the presentation of a petition seeking judicial dissolution of a closely held corporation, to make an order to show cause setting a date for a hearing to determine if the corporation should be dissolved. For readers who haven’t seen one, here’s what a typical order to show cause in a dissolution case looks like.

Subdivision (b) of the statute also requires, among other things, that the text of the order to show cause be published at least once in each of the three weeks before the hearing date in one or more newspapers of general circulation in the county in which the office of the corporation is located.  If, perhaps, in a moment of excruciating boredom, you’ve ever spent time perusing the legal advertisements in your favorite newspaper’s classified ads section, amidst the dozens of announcements of newly formed limited liability companies and spouses disowning the debts of their soon-to-be-ex-spouses, you may have run across a notice of a judicial dissolution proceeding.

I like to think that long ago, when our wise legislators originally enacted the publication requirement, they had more in mind than generating legal advertising revenues for newspaper publishers. I imagine back then, when population centers were smaller, corporations fewer and access to court filings harder to come by, it made sense for the protection of creditors and potential creditors to publish a notice in the local newspaper whenever someone filed a petition for corporate dissolution.

Today, with instant access via the internet to a vast array of business and financial information as well as online court records, the publication requirement seems like a relic. It can be, however, a very expensive relic. Depending what county you’re in – New York County being the most expensive – and whether the court requires publication in a single newspaper or multiple newspapers, the cost of publication can run in the thousands of dollars.

The publication requirement can also raise tactical considerations, including:

  • Subdivision (e) of BCL § 1106 permits the court to require the costs of publication to be borne by the corporation "or such other persons as the court may order." A minority shareholder seeking dissolution has a strong incentive to impose publication costs on the corporation, if not the majority owners.
  • Insofar as publication may increase the odds of a business competitor learning of the dissolution case and using it to its competitive advantage, the shareholder more likely to end up as the purchaser in a buyout settlement may want to avoid the potential loss of goodwill from publication, and therefore may seek to adjourn the hearing date pending negotiations in order to defer publication.

What happens if the petitioner fails to comply with the publication requirement by the date of the hearing? The petition won’t be dismissed, but the proceeding will be adjourned until after publication, which usually translates into at least one month’s delay. Here’s a case where the court ordered an adjournment for publication.

By the way, New York’s Limited Liability Company Law has no such publication requirement for dissolution of LLCs.