A corporation dissolved under Texas law is only entitled to file a petition for liquidation under chapter 7 and is barred from reorganizing under subchapter V of chapter 11, according to Bankruptcy Judge Eduardo V. Rodriguez of Houston.
A corporation was dissolved by forfeiture and lost its charter in early 2018. About 15 months later, the corporation filed a petition to reorganize under subchapter V of chapter 11.
Sua sponte, Judge Rodriguez raised the question of the corporation’s standing to file a chapter 11 petition after being dissolved. In his December 30 opinion, Judge Rodriguez decided that he was entitled to issue a final order although the question largely turned on state law.
In defense of its right to reorganize after dissolution, the debtor cited a 2000 decision from the Northern District of Texas, where a district judge in Fort Worth held that a corporation could file a chapter 7 petition to liquidate within three years of dissolution. See In re ABZ Ins. Servs., 245 B.R. 255 (Bankr. N.D. Tex. 2000).
Judge Rodriguez said that the outcome “hinges on state law.” He cited the state statute, saying that a dissolved corporation “continues in existence” for three years to sue or be sued and to liquidate its property.
However, another provision in state law provides that a corporation whose termination occurred as a result of forfeiture cannot continue the business or reinstate the charter. In those circumstances, Judge Rodriguez said, the corporation “may only wind up and apply its property to its liabilities and obligations.”
Judge Rodriguez therefore said that a corporation “that forfeits its corporate charter is permitted to prosecute a chapter 7 bankruptcy case within 3 years of such forfeiture because it is liquidating its assets to satisfy its liabilities and obligations.”
On the other hand, he dismissed the chapter 11 petition, holding that the corporation “cannot properly be a debtor under chapter 11, subchapter V, to the extent it seeks to continue its business or affairs through the pendency of this case and post-confirmation [sic] of any plan of reorganization.”
A corporation dissolved under Texas law is only entitled to file a petition for liquidation under chapter 7 and is barred from reorganizing under subchapter V of chapter 11, according to Bankruptcy Judge Eduardo V. Rodriguez of Houston.
A corporation was dissolved by forfeiture and lost its charter in early 2018. About 15 months later, the corporation filed a petition to reorganize under subchapter V of chapter 11.
Sua sponte, Judge Rodriguez raised the question of the corporation’s standing to file a chapter 11 petition after being dissolved. In his December 30 opinion, Judge Rodriguez decided that he was entitled to issue a final order although the question largely turned on state law.
In defense of its right to reorganize after dissolution, the debtor cited a 2000 decision from the Northern District of Texas, where a district judge in Fort Worth held that a corporation could file a chapter 7 petition to liquidate within three years of dissolution. See In re ABZ Ins. Servs., 245 B.R. 255 (Bankr. N.D. Tex. 2000).