MIAMI BUSINESS LITIGATION: DISSOLUTION OF CORPORATION

Florida law provides a mechanism to forcibly dissolve corporations if that corporation is paralyzed by internal disputes between shareholders or board members. The mechanism can provide some frustrated shareholders an option to rid themselves of the asset and move on. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The relevant Florida statute regarding court-ordered corporate dissolutions is section 607.1430, Florida Statutes. The statute enables a court to order dissolution in several circumstances. When shareholder bring a corporate dissolution lawsuit, the court can order dissolution in the following circumstances:

• When the directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and (1) irreparable injury to the corporation is threatened or being suffered, (2) the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally because of the deadlock, or (3) both.

• When the shareholders are deadlocked in voting power and have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors.

• If the corporate assets are being misapplied or wasted, causing material injury to the corporation.

• The directors or those in control of the corporation have acted, are acting, or are reasonably expected to act in a manner that is illegal or fraudulent.

Deadlock is probably the most common reason for corporate dissolution out of the possible scenarios listed above. One example applying section 607.1431, Florida Statutes to deadlock occurred in Fernandez v. Yates, 145 So. 3d 141 (Fla. 3d DCA 2014). In that lawsuit, the court dissolved a corporation that owned a medical building because the shareholders were deadlocked on “every issue.” The shareholders would not meet to address the needs of the building, and the building was left aging and mostly vacant as a result.

A shareholder petitioning the court for judicial dissolution could be required to sell his shares in the corporation to the remaining shareholders. Section 607.1431, Florida Statutes contains an automatic trigger requiring the corporation to deliver a notice to non-petitioning shareholders that dissolution can be avoided by purchasing the petitioner’s shares within thirty days of the petition. The petitioner’s shares may be purchased for “fair value.” Fla. Stat. § 607.1436. The shareholders must confer to determine fair value, and if they reach a resolution, the court must order the shares sold at the agreed upon price. § 607.1436 (“If, within the 60 days after the filing of the first election, the parties reach agreement as to the fair value and terms of the purchase of the petitioner’s share, the court shall enter an order directing the purchase of the petitioner’s shares upon the terms and conditions agree to by the parties.”). However, if the shareholders cannot agree on fair value, the court will decide fair value. § 607.1436 (“If the parties are unable to reach an agreement… the court… shall… determine the fair value of the petitioner’s shares.”). The dissolution statute does not provide guidance for determining fair value. The court could ultimately base its decision on expert testimony, the books and records of the corporation, or other evidence submitted by the shareholders. See Agnelli v. Lennox Miami Corp., 2022 WL 2788875 (S.D. Fla., July 15, 2022) (relying on expert testimony to determine fair value of shares).

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.