2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 14 - Dissolution
Part 3 - Judicial Dissolution
§ 14-2-1430. Grounds for Judicial Dissolution

The superior court may dissolve a corporation:

1. In a proceeding by the Attorney General if it is established that:
   1. The corporation obtained its articles of incorporation through fraud; or
   2. The corporation has continued to exceed or abuse the authority conferred upon it by law;
2. In a proceeding by a shareholder if it is established that:
   1. The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;
   2. The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal or fraudulent in connection with the operation or management of the business and affairs of the corporation, and the proceeding is initiated by the holders of at least 20 percent or more of all outstanding shares of a corporation;
   3. The shareholders are deadlocked in voting power and have failed, for a period that includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired or would have expired; or
   4. The corporate assets are being misapplied or wasted;
3. In a proceeding by a creditor if it is established that:
   1. The creditor's claim has been reduced to judgment, the execution on the judgment has been returned unsatisfied, and the corporation is insolvent; or
   2. The corporation has admitted in writing that the creditor's claim is due and owing and the corporation is insolvent; or
4. In a proceeding by the corporation to have its voluntary dissolution continued under court supervision;

   provided, however, that all of the actions described in paragraphs (1) through (3) of this Code section shall be stayed so long as the corporation is contesting, in good faith, in any appropriate proceeding, the alleged grounds for dissolution.

(Code 1981, §14-2-1430, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 66.)

- For article, "The Development of the Shareholder's Direct Action Damage Remedy," see 28 Ga. St. B. J. 195 (1992). For article, "Business Associations," see 53 Mercer L. Rev. 109 (2001).

Source: Model Act, § 14.30. This replaces provisions previously found in §§ 14-2-284 &14-2-285.

Section 14-2-1430 provides grounds for the judicial dissolution of corporations at the request of the state, a shareholder, a creditor, or a corporation which has commenced voluntary dissolution. This section states that a court "may" order dissolution if a ground for dissolution exists. Thus there is discretion on the part of the court as to whether dissolution is appropriate even though grounds exist under the specific circumstances. Article 9, and Sections 14-2-940 - 14-2-943, expressly grant the courts authority to order alternative forms of relief for statutory close corporations. Since, under the Code, each section has independent legal significance, nothing therein is intended to be imply that, in the case of corporations that are not statutory close corporations, the courts would lack the traditional powers of courts of equity to fashion remedies suitable to the circumstances.

Paragraphs (1) - (3) are modified by a proviso, which incorporates the approach of prior law, § 14-2-284(a)(2), and stays dissolution actions if the corporation is contesting the grounds for dissolution in another forum. A decision unfavorable to the corporation would operate as a collateral estoppel, and a delay in dissolution proceedings will serve the interests of judicial and corporate economy.

Paragraph (1) preserves long standing and traditional provisions authorizing the state to seek to dissolve involuntarily a corporation by judicial decree. See former § 14-2-284(a). Paragraph (1) limits the power of the state in this regard to grounds that are reasonably related to this objective.

Paragraph (2) provides for involuntary dissolution at the suit of a shareholder under circumstances involving deadlock or significant abuse of power by controlling shareholders or directors. These grounds generally follow those of prior law, § 14-2-285(a)(1) - (3).

Dissolution because of deadlock is available if there is a deadlock at the directors' level but only if (1) the shareholders are unable to break the deadlock and (2) either "irreparable injury" to the corporation is being threatened or suffered or the business and affairs "can no longer be conducted to the advantage of the shareholders." This language closely follows the earlier versions of the Model Act except that the requirement of "irreparable injury" has been relaxed to some extent. Previously, under § 14-2-285(a)(1)(A), both deadlock and irreparable injury to the corporation were required; under the Code, either irreparable injury to the corporation or a condition such that the corporation's business can no longer be conducted to the advantage of the shareholders generally is sufficient, in conjunction with a director deadlock. Another significant difference is that board deadlock under prior law was only a ground for liquidation where it was shown "that it is impracticable for the court to appoint a provisional director . . . or to continue one in office." See § 14-2-285(a)(1)(A). That is omitted in Paragraph (2) because the Code contains no general provisions for appointment of a provisional director. The provisions for a provisional director are contained in Section14-2-941, and deal only with statutory close corporations. Obviously in all deadlock cases the court should consider alternative, and less drastic, remedies before granting dissolution.

Dissolution is also available because of deadlock at the shareholders' level if the shareholders are unable to elect directors over a two-year period. This preserves the rule of former § 14-2-285(a)(1)(C). Dissolution under Paragraph (2)(C) is not dependent on irreparable injury or misconduct by the directors then in office; if injury or misconduct is present, a deadlocked shareholder may proceed under Paragraph (2)(B).

A shareholder may sue for involuntary dissolution upon proof either that those in control of the corporation are acting illegally or fraudulently (Paragraph (2)(B)) or that the corporate assets are being misapplied or wasted (Paragraph (2)(D)). The application of these grounds for dissolution to specific circumstances involves judicial discretion in the application of a general standard to concrete circumstances. The courts should be cautious in the application of these grounds so as to limit them to genuine abuse rather than instances of acceptable tactics in a power struggle for control of a corporation. To restrict their use for purpose of extortion by minority interests, the Model Act provisions were modified to require that such a petition must be signed by the holders of at least twenty percent of the outstanding shares of the corporation, to assure that substantial economic interests are being asserted. This limitation, based on N.Y. Bus. Corp. L. § 1104-a, was added to clarify that illegal conduct unrelated to the corporation's operations is not grounds for dissolution. Thus, dissolution should not be granted merely because one side is disappointed with the results of a power struggle, or a decision concerning distribution policies. Further, the ground of oppression was stricken from Paragraph (2)(B), because it is too vague, and is often the complaint of those who have lost a corporate disagreement. In this respect, the approach of former Georgia law was preserved. See former § 14-2-285(a)(1)(B). Investors concerned about losing such disputes must consider more specific contracts to prevent majority dominance, including adopting statutory close corporation status. See also Carney, The Theory of the Firm: Investor Coordination Costs, Control Premiums and Capital Structure, 65 Wash. Univ. L. Q. 1 (1987).

Creditors may obtain involuntary dissolution only when the corporation is insolvent and only in the limited circumstances set forth in Paragraph (3). Typically, a proceeding under the federal Bankruptcy Act is an alternative in these situations.

A corporation that has commenced voluntary dissolution may petition a court to supervise its dissolution under Paragraph (4). Such an action may be appropriate to permit the orderly liquidation of the corporate assets and to protect the corporation from a multitude of creditors' suits or suits by dissatisfied shareholders. This follow the approach of former § 14-2-276(3).

Note to 1989 Amendment Subsection (2)(C) was amended by the addition of the phrase "or would have expired". This restored language from former O.C.G.A. § 14-2-285(a)(1)(C), and is consistent with the approach of Code Section14-2-805(e), which continues a director in office after expiration of a term until a successor is elected and qualifies.

Cross-References Administrative dissolution, see § 14-2-1420 et seq. Alternative remedies, statutory close corporations, see § 14-2-940 et seq. Director action, see § 14-2-820 et seq. Dissolution of statutory close corporations, see § 14-2-943. Election of directors, see § 14-2-803. "Proceeding" defined, see § 14-2-140. Revocation of articles of incorporation by state, see § 14-2-203. Shareholder voting, see § 14-2-725 et seq. Terms of directors, see §§ 14-2-805 &14-2-806. Ultra vires acts, see § 14-2-304. Voluntary dissolution, see § 14-2-1401 et seq.

A deadlock occurs when stock of a corporation is owned in equal shares by two contending parties, which condition threatens to result in destruction of the business, it appears that the parties cannot agree upon management of the business, and under existing circumstances, it appears that neither one is authorized to impose its views upon the other. Black v. Graham, 266 Ga. 154, 464 S.E.2d 814 (1996).

When sole and equal shareholders, who functioned as de facto directors, were wholly unable to agree on the management of the business, neither had the authority to prevail in their individual view, and the hostile and static situation threatened to do irreparable harm to the corporation, the appointment of a receiver and dissolution was warranted. Black v. Graham, 266 Ga. 154, 464 S.E.2d 814 (1996).

If a party was able to show deadlock and the threat of irreparable injury, that party did not have to show misapplication or waste of corporate assets. Black v. Graham, 266 Ga. 154, 464 S.E.2d 814 (1996).

- A petition seeking judicial dissolution failed to state a claim upon which relief could be granted because the petitioner had relinquished ownership of the shares in the corporation and was no longer a shareholder at the time the petition was filed. Cook v. Regional Communs., Inc., 244 Ga. App. 869, 539 S.E.2d 171 (2000).

- Partner's refusal to fulfill the terms of an agreement the partner entered to settle a lawsuit filed by another partner, which sought an order dissolving two corporations, pursuant to O.C.G.A. § 14-2-1430(2)(A), contravened public policy favoring settlements, and the appellate court found that the partner's appeal from the trial court's judgment ordering the partner to comply with the settlement agreement was frivolous and warranted sanctions pursuant to Ga. Ct. App. R. 15(b). McClain v. George, 267 Ga. App. 851, 600 S.E.2d 837 (2004).

RESEARCH REFERENCES

Am. Jur. 2d.

- 19 Am. Jur. 2d, Corporations, § 2350 et seq.

- 19 C.J.S., Corporations, §§ 916, 931, 932, 937, 938, 945, 946, 947.

- Dissolution of corporation on ground of intracorporate deadlock or dissension, 83 A.L.R.3d 458.