This is an update to the prior post. My bankruptcy colleague posted:
A corporation filed for Chapter 7 protection. However, the 80% shareholder, who is neither an officer, nor a director, did not sign anything authorizing the filing. Can the case be dismissed based on the failure of the Board to have the 80% shareholder sign the corporate resolution authorizing the filing?
I suspect that the answer to my question is, “Look at the articles of incorporation and the by-laws,” but I thought I’d see if there is a general principle I can use here.
All the best, Nick
Someone asked him for more details and he responded:
The board voted unanimously to file. She wasn’t on the board, so she couldn’t vote. Her connection to the company was derivative: her husband was an 80% owner and board member. When he died she got the stock because it had been community property, but she didn’t get her husband’s membership on the board because that hadn’t been community property any more than his job would have been community property.
I’m interested in this issue because it will make a great final exam for my Business Org class next year. My students can recite in their sleep, “the board of directors makes all consequential decision,” and, the shareholders do little except appoint the board and vote on other “fundamental changes to the corporate structure.” Liquidating all of the assets of the corp seems to me to be a “fundamental change in the corporate structure.” Cal Corps Code section 1001 says:
(a) A corporation may sell, lease, convey, exchange, transfer, or otherwise dispose of all or substantially all of its assets when the principal terms are approved by the board, and, unless the transaction is in the usual and regular course of its business, approved by the outstanding shares ( Section 152 ), either before or after approval by the board and before or after the transaction.
The chapter 7 is certainly an “otherwise dispose of” the assets of the corp outside of the ordinary course of business. I would immediately file a motion to dismiss the case as it was not authorized by the shareholders. If that does not work, I will be happy to do the appeal. Of course, the trustee might find a creditor to file an involuntary but that is a different problem.