Can a corporation file Articles of Dissolution if it still has outstanding liabilities?

I am the owner of a small corporation that is struggling financially and considering closing down. However, we still have outstanding liabilities, including unpaid debts and pending lawsuits. I have heard about the option of filing Articles of Dissolution to formally dissolve the corporation, but I'm unsure if it is legally permissible to do so while these liabilities exist. I want to understand the potential consequences and any legal requirements involved before proceeding with the dissolution process.

Damien B.

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Licensed in New York

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October 3, 2023

Hello. My name is Damien Bosco, Esq. My law office is located in Long Island City. In New York State, it is possible to dissolve a corporation even with known creditors and lawsuits. However, it is advisable not to do so during or pending litigation. Filing Articles of Dissolution does not eliminate creditor claims, lawsuits, or possible personal liability. Following specific requirements and procedures to comply with state law and minimize risks is crucial. Here's a best practice breakdown of how it works in New York: 1. Addressing Creditors - Notify known creditors about the intent to dissolve, allowing them to file claims to protect against future disputes. - Settle debts or make arrangements, which can involve negotiating settlements or creating payment plans. 2. Tax Clearance - Obtain a Consent to Dissolution from the New York State Department of Taxation and Finance by filing outstanding tax returns and paying any owed taxes. - Submit Form TR-960, "Consent to Dissolution Tax Clearance," to request consent. 3. Filing Articles of Dissolution - Prepare Articles of Dissolution according to New York Business Corporation Law (BCL) §1003. - Pay the required fee and submit the documents to the New York Department of State. 4. Dealing with Lawsuits - Existing lawsuits continue after dissolution, and creditors can pursue claims against remaining assets. - Proper notification and settlement efforts help reduce personal liability for corporate debts. 5. Post-Dissolution Responsibilities - Wind up the corporation by selling assets, distributing remaining assets, and resolving claims or lawsuits. - Following these steps is vital to avoid personal liability accusations during asset distribution. 6. Personal Liability Risks - Properly handling assets and following corporate formalities are essential to avoid being held personally liable for debts. - Bankruptcy may be a better option if liabilities exceed assets significantly. Practical Steps: - Work with a business attorney and accountant. - Address tax obligations and obtain tax clearance. - Notify creditors and file Articles of Dissolution. - Retain records for at least 6 years post-dissolution. If you need help with document drafting or understanding the dissolution process in New York, feel free to ask!