COMMENT

Source: Model Act, § 14.07. This replaces provisions previously found in § 14-2-293.

Earlier versions of the Model Act did not recognize the serious problem created by possible claims that might arise long after the dissolution process was completed and the corporate assets distributed to shareholders. Most of these claims were based on personal injuries occurring after dissolution but caused by allegedly defective products sold before dissolution, but they also involved negligence for which the statute of limitations did not begin to run until the negligence was discovered (e.g., a surgical instrument left inside the patient). The application of the former provisions of Georgia law to this problem led to confusing and inconsistent results. The problems raised by this type of litigation are intractable; on the one hand, the application of a mechanical two-year limitation period to a claim for injury that occurs after the period has expired involves obvious injustice to the plaintiff. On the other hand, to permit these suits generally makes it impossible ever to complete the winding up of the corporation, make suitable provisions for creditors, and distribute the balance of the corporate assets to the shareholders.

The solution adopted in Section14-2-1407 with respect to claims that are contingent at the time of the publication of the notice, or that arise after the notice, the effect of the Code is to continue liability for five years after the corporation publishes notice of intent to dissolve, or two years after final dissolution, whichever is later. (Subsection (d).) The approach of prior law, under § 14-2-293 was also to cut off claims two years after the date of dissolution. It is recognized that a five year cut-off is itself arbitrary, but it is believed that the great bulk of post dissolution claims will arise during this period. This provision is therefore believed to be a reasonable compromise between the competing considerations of providing a remedy to injured plaintiffs and providing a period of repose after which assets distributed by dissolved corporations to their shareholders are free of all claims and shareholders may hold them secure in the knowledge that they may not be reclaimed.

Subsection (a) permits a corporation to publish a notice to claimants in its notice of intent to dissolve published in accordance with Section 14-2-1403.1, and subsection (b) sets out the required contents of the notice.

Subsection (c) provides that creditors who hold known and non-contingent claims not otherwise barred by applicable statutes of limitations will be barred two years after the publication date, unless they commence a proceeding to enforce the claim during that period. The reference to contingent claims is to claims that are contingent with respect to corporate liability, and not simply unliquidated as to amount. Unliquidated claims can be reduced to a judgment during the winding up process. Thus claims arising both during the winding up period and after the filing of articles of dissolution are excluded from these limitations.

Subsection (d) provides the relevant statute of limitations for contingent claims and those arising after the filing of the notice of intent to dissolve. This bars suits against the officers and directors of the corporation as well as against the corporation itself. Unknown and contingent claimants are thus given at least five years from the publication of notice of intent to dissolve to bring their claims. They are further protected by being allowed to bring claims for two years after filing of articles of dissolution, if this is a later date. Thus most products liability claimants will have a minimum of five years from the cessation of normal business activities, except for buyers of those products produced during the winding up process. Claims arising during the winding up process are assured at least two years from the filing of articles of dissolution.

Directors must generally discharge or make provision for discharging all of the corporation's liabilities before distributing the remaining assets to the shareholders. See the Comment to Section 14-2-1406. But Section 14-2-1407 does not contemplate that liquidating distributions to shareholders will be deferred until all possible claims are barred under Section 14-2-1407. Many claims covered by this section are of a type for which provision may be made by the purchase of insurance or by the setting aside of a portion of the assets, thereby permitting prompt distributions in liquidation. Claimants, of course, may always have recourse to the remaining assets of the dissolved corporation. See subsection (e)(1). Further, where unexpected claims arise after distributions have been made to shareholders in liquidation, subsection (e)(2) authorizes recovery against the shareholders receiving the earlier distributions. The recovery, however, is limited to the smaller of the recipient shareholder's pro rata share of the claim or the total amount of assets received as liquidating distributions by the shareholder from the corporation. The provision ensures that claimants seeking to recover distributions from shareholders will try to recover from the entire class of shareholders rather than concentrating only on the larger shareholders, and protects the limited liability of shareholders.

Cross-References Administrative dissolution, see § 14-2-1420 et seq. "Claim" defined, see § 14-2-1406. "Deliver" includes mail, see § 14-2-140. Distributions, see §§ 14-2-640 &14-2-831. Effective date of dissolution, see § 14-2-1408. Effective date of notice, see § 14-2-141. Judicial dissolution, see § 14-2-1430. Judicial dissolution of statutory close corporation, see § 14-2-943. Known claims, see § 14-2-1406. "Notice" defined, see § 14-2-141. Notice of intent to dissolve, see § 14-2-1403. Notice to the corporation, see § 14-2-141. "Principal office": defined, see § 14-2-140; designated in annual registration, see § 14-2-1622. "Proceeding" defined, see § 14-2-140. Registered office: designated in annual registration, see § 14-2-1622; required, see §§ 14-2-202 &14-2-501.

JUDICIAL DECISIONS

RESEARCH REFERENCES