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Posted: May 29, 2017

25% Owner of Corporation Not Entitled to Dissolution

On May 17, 2017, Justice Ash of the Kings County Commercial Division issued a decision in Matter of Borriello v. Jersey Lynne Farms, Inc., 2017 NY Slip Op. 31077(U), dismissing a petition for corporate dissolution, explaining:

Because it is undisputed that Borriello holds only 25% of the shares of Jersey Lynne, Borriello cannot seek judicial dissolution under BCL S1104. However, under BCL S 1104-a, holders of shares representing twenty percent or more of the votes of all outstanding shares of a corporation may present a petition of dissolution on the grounds that the directors or those in control of the corporation have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders and/or the property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation.

In this context, the terms “illegal” and “fraudulent” take on their generally accepted common law definitions. “Oppressive actions” refer to conduct where a minority shareholder has been excluded from partiCipation in corporate affairs or management for no legitimate business reason or personal animus, or corporate policies are changed by the majority to prevent the minority shareholder from receiving a reasonable return on his or her investment.

With the foregoing principles in mind, the Court finds that Respondents are entitled to dismissal of Borriello’s petition for dissolution. Insofar as Borriello contends that she has suffered “oppressive action” by being excluded from participation in management, her separation from Jersey Lynne as an employee / officer stems, indisputably, from a negotiated separation agreement for which she was paid a severance package. Thus, as a matter of law, Borriello cannot claim to have been improperly freezed out. In addition, not only are Borriello’s allegations of waste conclusory, but “waste” refers to the misappropriation of corporate assets for private purpose. Here, the petition fails to allege that any of the individual Respondents are misusing corporate assets for their personal gain. A corporation’s lack of profitability does not constitute waste for purposes of BCL S1104-a. To the extent Borriello proffers the Caterina lease as evidence of Respondents committing waste or engaging in oppressive conduct, this Court has already determined the propriety of said lease pursuant to a trial.

(Internal quotations and citations omitted) (emphasis added).

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