Corporate Law Blog

Liability of corporation may still exist following dissolution

According to Supreme Court decision for one particular state, dissolution of a corporation does not guarantee that liability will necessarily come to an end. Krafft-Murphy Company, Inc. was a company that had engaged in supplying and installing asbestos-containing products (presumably exposing it to liability). Krafft had also dissolved in 1999.

A Chancery Court had decided that the appointment of a receivership concerning the winding up of the company's affairs was not appropriate. This lower court ruled that Krafft-Murphy Company, Inc. had no assets left to distribute to possible tort victims. However, that state's Supreme Court reversed the Chancery Court decision and held that an unexhausted insurance policy still belongs to a dissolved company - even after the company had gone through a three-year wind-up period.

That state's high court ruled that a contingent contractual right was still property under a state statute pertaining to receivers.  As the unexhausted insurance policy was said to still vest, it could thus be considered property of Krafft.

It must be remembered that this matter was not decided in Kentucky.  Different states may in certain instances rule differently.  However, this case does demonstrate that there could be legal concerns for a corporation long after that particular company has dissolved.

Creditor claims is just one of a number of issues that a corporation faces when a sale or dissolution of a company takes place.  It's for that reason that corporate officers and directors may wish to seek the advice of an experienced business attorney when making preparations for a sale or dissolution.  It's always best to avoid unpleasant surprises concerning a particular detail that was overlooked.

Source: The National Law Review, "Delaware Supreme Court Defines Unexhausted Insurance Policies as Property of Dissolved Corporations," Bruce M. Sabados, Dec. 7, 2013