Dissolved Corporations Can Still be Sued in Delaware

The Supreme Court of Delaware concluded that if dissolved corporations have undistributed “property,” a personal injury claim can be pursued. In the Matter of Krafft-Murphy Company, Inc., No. 85, 2013 (November 26, 2013). Krafft-Murphy, a Delaware corporation, dissolved in 1999. Despite the dissolution, tort claimants continued to file lawsuits against the corporation in other jurisdictions.

Krafft-Murphy filed a series of motions to dismiss arguing that it had been dissolved for three years and could no longer be sued under Delaware law. The Delaware Court denied the motions to dismiss. The Court explained that even though the corporation was dissolved, the corporation was still in possession of property, specifically its insurance policies. The corporation maintained property interests against which the claimant could proceed.  Notably, the court ruled that, because Krafft-Murphy maintained unexhausted insurance policies, the 1999 corporate dissolution did not extinguish the corporation’s potential liability to third parties by time-barring those claims.

Receiver Appointed to Act on Behalf of the Dissolved Corporation

As a result, the court ordered a receiver to act on behalf of the corporation. Because the corporation ceased to exist after the expiration of the three-year period, it lost the power to control its own affairs. It had no remaining authority to direct its insurers to continue conducting its litigation proceedings. Once a new suit is brought after the three year period, only a receiver can defend the corporation’s interests.

This ruling has substantial implications as Delaware is often considered a particularly favorable jurisdiction for corporate formation and a leading source of jurisprudential guidance on corporate policies and law. Although the case was decided in another jurisdiction, the case truly highlights the importance of following the required notifications to creditors, as well as the distribution of assets during dissolution. To ensure proper dissolution of your corporation, it may be advisable to consult your attorney.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.