Navigating corporate dissolution can be daunting, especially when distributions are involved. The average conversation surrounding the winding up of a business usually includes tax considerations and liabilities.
In a recent case, eight years after dissolution, the shareholder of voluntarily dissolved corporation sued to enforce a $1.5 million promissory note which the corporation transferred to him upon dissolution. In efforts to avoid paying, the defendants argued that the Illinois Business Corporation Act barred the lawsuit because it was filed more than five years after dissolution of the corporate entity.
An Illinois Appellate ruled in favor of enforcing the promissory note, reasoning that if a cause of action would exist without the corporation, then the cause of action was not barred. Here, during the dissolution phase the plaintiff properly assigned the promissory note from the corporate entity to the shareholder, making the debtor liable to the shareholder. Therefore, at the time the defendants failed to pay on the note, it no longer belonged to the dissolved corporation but was considered property of the shareholder by operation of law. Although the beginning and end of every story usually occurs in haste, this should serve as a reminder to take the appropriate steps when winding up business affairs.