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Involuntary, Corporate Judicial Dissolution

Corporate dissolution (i.e., the breaking up and termination of a corporation) usually occurs by the voluntary election of the board of directors and/or shareholders. Missouri law, however, sets forth circumstances in which a corporation can be dissolved involuntarily. Involuntary corporate dissolution usually occurs judicially and can be initiated by the (1) attorney general, (2) a creditor, or a (3) shareholder.

In order for the attorney general to dissolve a corporation, it must prove that the corporation obtained its articles of incorporation through fraud or that it has exceeded or abused the authority conferred upon it by law. If a creditor initiates the action, dissolution is granted if it is established that the creditor’s claim has been reduced to judgment, the execution on the judgment has been returned unsatisfied, and the corporation is insolvent; or the corporation has admitted in writing that the creditor’s claim is due and owing and the corporation is insolvent; or in a proceeding by the corporation to have its voluntary dissolution continued under court supervision.

Shareholder initiated dissolution merits special consideration. Shareholder initiated dissolution can be granted if (a) the directors are deadlocked in the management of the corporation’s affairs, (b) the directors are acting illegally, oppressively or fraudulently, (c) the shareholders are deadlocked, or the (d) corporate assets are being misapplied or wasted.

Oppressive behavior, standing alone, is enough to cause liquidation of a corporation. Whale Art Co. v. Docter, 743 S.W.2d 511, 514 (Mo. Ct. App 1987). The existence of oppression must be determined on a case by case basis and oppression suggests harsh, dishonest or wrongful conduct and a visible departure from the standards of fair dealing. Id. Officers and directors of a corporation occupy a fiduciary relation to the corporation and to the stockholders; their position is one of trust and they are bound to act with fidelity and subordinate their personal interest to the interest of the corporation should there be a conflict. Hyde Park Amusement Co. v. Mogler, 214 S.W.3d 541, 543 (Mo. 1948). This fiduciary duty requires corporate  directors and officers to exercise the utmost good faith in the discharge of the duties arising out of their trust, and to act for the corporation and its stockholders, giving all the benefit of their best judgment. Moore v. Moore, 189 S.W.3d 627, 633 (Mo. Ct. App. 2006). Officers of a closely held corporation owe a higher degree of fiduciary duty than do publicly held corporations. Forinash v. Daugherty, 697 S.W.2d 294 (Mo. Ct. App. 1985).

Dissolution of a corporation is a drastic remedy and courts should resort to this procedure only to prevent irreparable injury, imminent danger of loss or a miscarriage of justice. Struckhoff  v. Echo Ridge Farm, Inc., 833 S.W.2d 463 (Mo. Ct. App. 1992). Courts should consider the effect the dissolution would have on the public as well as the shareholders. Id. The complaining shareholder has the burden of proof to establish grounds for dissolution. Id. If a court grants a judicial dissolution, then the Court will enter its order disposing of corporate assets and assigning liabilities; this can be a cumbersome process and is similar to the division of property that occurs in a dissolution of marriage.

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