This blog, written by Thomas E. Rutledge, focuses primarily on business entity law in Kentucky. Postings on contract law, contractual and statutory construction, and the entity law of other jurisdictions appear as well. There may as well be some random discussions of classical, medieval and renaissance history.
Tuesday, September 30, 2014
Planned Distribution of Assets to Satisfy Obligations Guaranteed by Management and to Leave Other Creditors Hanging Enjoined
Distribution of Assets to Satisfy Obligations Guaranteed by Management and to
Leave Other Creditors Hanging Enjoined
It is not uncommon that when a
corporation or other business entity is dissolved that the available assets
will not be sufficient to satisfy all of the corporation’s debts.Recently a North Carolina court was called in
to asses a circumstance in which the corporation’s assets were to be used to
satisfy only the debts personally guaranteed by members of management, leaving
the claim of the other creditors unsatisfied.The Court issueda restraining
order to preclude that from happening.Americana Development, Inc. v. Ebius Trading
& Distributing Company, No. 13-CVS-7849 (Gen. Ct. of Justice, Sup.
Div., County of Wake, N.CAug. 28,
Ebius had suffered an apparent long
string of financial set-backs, losing money in each of the recent years.Recently it had borrowed $200,000 from Wells
Fargo; that line of credit was personally guaranteed by Byers and Corley,
members of management.The corporation
otherwise owed $2.4 million in trade debt.
In connection with Edius winding up,
Byers and Corley sought to saell certain Ebius intellectual property and to
apply the proceeds to the satisfaction of the Wells Fargo obligation, in so
doing eliminating Byers’ and Corley’s obligations under the personal
Under North Carolina law it is clear
that the directors of an insolvent and dissolving corporation owe a fiduciary
obligation to the corporation, which duty is breached if they use their control
of the entity for their own benefit at the expense of other creditors.
The Court entered a restraining
order to the effect that corporation debts could be satisfied only “on a pro