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Corporation Dissolved for Failure to Pay Franchise Taxes Can Be Sued On Its Pre-Dissolution Obligations

The Second Department explained that a corporation that has been dissolved by the Secretary of State for failure to pay franchise taxes continues to exist for winding up its affairs and may be sued on its pre-dissolution obligations:

Pursuant to Tax Law § 203-a, a corporation can be dissolved by proclamation of the Secretary of State for failure to pay its franchise taxes. A dissolved corporation may not carry on new business (see Business Corporation Law § 1005[a][1]) and no longer has the right to commence an action in the courts of this State, except in specific circumstances permitted by statute … . Business Corporation Law § 1006 provides, in relevant part, that a dissolved corporation “may continue to function for the purpose of winding up the affairs of the corporation . . . The dissolution of a corporation shall not affect any remedy available to or against such corporation, its directors, officers or shareholders for any right or claim existing or any liability incurred before such dissolution, except as provided in sections 1007 . . . or 1008.”

A corporation therefore “continues to exist after dissolution for the winding up of its affairs, and a dissolved corporation may sue or be sued on its obligations, including contractual obligations and contingent claims, until its affairs are fully adjusted” … . The Business Corporation Law requires that the claim was to have existed before dissolution … . MMI Trading Inc v Nathan H Kelman Inc, 2014 NY Slip Op 05632, 2nd Dept 8-6-14

 

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