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|Receivership and Dissolution
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I. Appointment of a Receiver
The statutory provisions that control the appointment of a receiver for a corporation are enumerated in TBCA art. 7.04-7.08 and Tex. Civ. Prac. & Rem. Code Ann 64.001-64.076
(Vernon 1896). A court may not administer corporations in receivership for more than 3 years unless there is an application for extension, notice to parties and a hearing; no
receivership shall expand beyond 8 years. Bayoud v. Bayoud, 797 S.W.2d 304, 309 (Tex. App.–Dallas 1990, writ denied). See also Tex. Civ. Prac. & Rem. Code § 64.072 (Vernon
1986). Close corporations are controlled by the provisions of TBCA art. 12.52. The requirements of the TBCA control over conflicting provisions of the general receivership
statutes. King Commodity Co. v. State, 508 S.W.2d 439, 44648 (Tex. Civ. App.–Dallas 1974, no writ) (TBCA's provisions for suit in county of corporation's registered officers was
The appointment of a receiver is a harsh, even a radical remedy. Even in the corporate arena, economic waste incident to receiverships and forced sales are accentuated.
Patton v. Nicholas, 154 Tex. 385, 279 S.W.2d 848, 887 (1955); Texas Consol Oils v. Hartwell, 240 S.W.2d 324, 327 (Tex. Civ. App.–Dallas 1951, mand. denied) (no more radical
remedy could be devised than conservation of assets through receivership, which discredits, cripples and most often ends a business or enterprise).
If the court can, by a combination of lesser remedies, cure the illness presented by the movant -- such as malicious suppression of dividends -- the less drastic measures
should be implemented. See 279 S.W.2d at 887 (court-ordered mandatory injunction requiring corporation to declare and pay dividend entered in place of appointment of
receiver for liquidation of profitable corporation); Davis v. Sheerin, 754 S.W.2d 375, 380 (Tex. App.-Houston [1st Dist.] 1988, writ denied) (although not explicitly provided by
statute, Texas courts, under their general equity power, may decree a "buyout" of a minority shareholder's interest in a close corporation where less harsh remedies are
inadequate to protect the rights of the parties). To this end, article 7.06 of the TBCA provides that the appointment of a liquidating receiver is appropriate “only if all other
requirements of law are complied with and if all other remedies available either at law or in equity, including the appointment of a receiver of specific assets of the corporation
and appointment of a receiver to rehabilitate the corporation, are determined by the court to be inadequate.”
A. Receiver for specific corporate assets
Article 7.04 allows the appointment of a receiver over specific corporate assets, where "all other requirements of law are complied with and if other remedies available either at
law or in equity are determined by the court to be inadequate." TBCA art. 7.04. Such assets must be located within the state. Id. It does not matter if the assets are owned by a
domestic or foreign corporation so long as the disputed assets are the subject of litigation. Id.
Among the persons who may seek the remedy are partners when it is shown the property or fund is in danger of being lost, removed or materially injured. See Id., art. 7.04A(l).
The appointment of a receiver over an entire corporation instead of over specific assets is inappropriate where the more limited role of the receiver can remedy the wrong
alleged. Humble Exploration Co. v. Fairway Land Co., 641 S.W.2d 934, 939 (Tex. App.–Dallas 1982, writ ref'd n.r.e.).
B. Appointment of a Rehabilitative Receiver
A shareholder may also petition the court for appointment of a receiver to rehabilitate the corporation. As a prerequisite to the appointment of a rehabilitative receiver, all other
remedies at law or in equity must be deemed inadequate. Circumstances that may require appointment of a receiver include (a) insolvency or an imminent danger of
insolvency; (b) deadlock in management that causes or threatens to cause irreparable injury to the corporation; (c) illegal or oppressive management; (d) waste of corporate
assets; and (e) a deadlock in the voting of shareholders that has existed for two years. TBCA art. 7.05A(l).
A creditor may petition the court for appointment of a receiver to rehabilitate the corporation in the following circumstances: (a) the corporation is insolvent and (b) either (i) the
creditor has an unsatisfied judgment against the corporation or (ii) the corporation admitted in writing that the creditor's claim is due and owing. TBCA art. 7.05A(2).
It has been held that the appointment of a rehabilitative receiver was not reversible error despite evidence that the corporation could not be rehabilitated that was presented to
the trial court. See Aubin v. Territorial Mort. Co., 640 S.W.2d 737, 742 (Tex. App.–Houston [14th Dist.] 1982, no writ). Because the appointment of a receiver is an equitable
remedy within the discretion of the trial court, absent a clear abuse of discretion the reviewing court will not disturb the original finding. Id.; see also Strategic Minerals Corp. v.
Dickson, 320 S.W.2d 882, 885 (Tex. Civ. App.-Austin 1959, writ ref'd n.r.e.).
Appointment of a receiver is a drastic remedy, and a court will not order it simply because a shareholder is dissatisfied with the management of a corporation. Texarkana
College Bowl, Inc. v. Phillips, 408 S.W.2d 537 (Tex. Civ. App.–Texarkana 1966, no writ); see also TBCA art. 7.05A (receiver will be appointed only if all requirements of law are
complied with and all other remedies available at law or in equity are inadequate). Nevertheless, receivership is a proper remedy for serious abuses by the management of a
corporation. Robinson v. 7hompson, 466 S.W.2d 626 (Tex. Civ. App.–Eastland 1971, no writ).
C. Appointment of a Liquidating Receiver
The most drastic form of receivership liquidates the remaining assets of a corporation. Patton v. Nicholas, 154 Tex. 385, 279 S.W.2d 848, 856-57 (1955) (order appointing
liquidating receiver over thriving business reversed where permanent injunction to compel distribution of dividends would correct act complained of). This remedy is available
to (i) the Attorney General who files an action to dissolve a corporation, (ii) a corporation that desires its liquidation be supervised by the Court; (iii) a corporation for whom a
receiver has been appointed and for which no feasible plan exists 12 months after the receiver's appointment to remedy the situation for which the initial receiver was
appointed, and (iv) any creditor of the corporation if it is has established that irreparable harm would fall to the unsecured creditors as a class without an immediate liquidation
of the corporation's assets. TBCA art. 7.06A( 1)-(4).
D. Effect of Appointment
A receiver appointed by the court has certain statutory powers enumerated in the TBCA's article 7.07. If no feasible plan for remedying the problems of the corporation is
presented within twelve months of the appointment of a receiver, a shareholder may obtain an order that the corporation be liquidated. TBCA art. 7.06A(3); Leck v. Pugh, 676 S.W.
2d 180 (Tex. App.-Waco 1984, no writ). Liquidation requires that all debts, obligations, and liabilities be discharged, including any claims asserted against the corporation in
pending lawsuits. See generally Burnett v. Chase Oil & Gas, Inc., 700 S.W.2d 737 (Tex. App.–Tyler 1985, no writ).
A corporation may dissolve voluntarily, pursuant to article 6 of the TBCA. Recent amendments permit an insolvent corporation to dissolve voluntarily if adequate provision is
made to apply the corporation's assets after the date of dissolution. TBCA arts. 6.04A, 6.06A. A corporation that dissolves voluntarily may now also revoke its dissolution for a
period of 120 days after the issuance of a certificate of dissolution. TBCA art. 6.05A.
Generally, a dissolved corporation continues its corporate existence for a period of three years from the date of dissolution for the purposes of bringing or defending claims of or
against the dissolved corporation. TBCA art. 7.12. Recent amendments to article 7.12 allow a dissolved corporation to reduce the limitations periods for claims against the
dissolved corporation in certain circumstances.
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