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Current Developments in the Commercial Divisions of the
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Posted: January 26, 2015

Court Denies Motion to Amend Petition for Judicial Dissolution of Corporation to Add Allegations to Post-Commencement Wrongdoing

On January 16, 2015, Justice Platkin of the Albany County Commercial Division issued a decision in Matter of Digeser v. Flach, 2015 NY Slip Op 50041(U), ruling that a petitioner seeking judicial dissolution of a corporation could not amend the petition to add allegations of post-commencement wrongdoing, while preserving the original valuation date for purposes of the respondent’s buyout right.

Where a shareholder seeks dissolution under that BCL § 1104-a, the respondents “ha[ve] the right under BCL § 1118 to elect to purchase petitioner’s shares for their fair value as of the day prior to the commencement.” In Matter of Digeser, the respondent declined to exercise the buyout right. Later, the petitioner sought leave to amend his petition to add additional grounds for dissolution based on alleged post-commencement conduct. However, he asked that the valuation for purposes of the buyout right be determined based on the original filing date – presumably because the corporation’s value had decreased since the filing of the initial petition. Justice Platkin denied the motion, finding that retaining the original valuation date would unfairly prejudice the respondents:

In the Court’s view, respondents would be substantially prejudiced if petitioner were permitted to pursue dissolution of the subject corporations based upon allegations of post-commencement wrongdoing while retaining a pre-commencement valuation date for BCL § 1118 purposes. If petitioner’s proof of pre-commencement oppression, waste and looting falls short of establishing a basis for relief under BCL § 1104-a, the petition would be subject to dismissal, and any subsequent petition premised upon allegations of post-commencement wrongdoing would be subject to a new BCL § 1118 right of election with an updated valuation date. Petitioner offers no persuasive basis for denying respondents the opportunity to purchase his shares valued as of a date subsequent to the accrual of the grounds for dissolution, as contemplated by BCL § 1118. For this reason, the post-commencement grounds for dissolution should, as a discretionary matter, be denied nunc pro tunc treatment and instead treated as the equivalent of the filing of a new petition. (see BCL § 1107). Accordingly, insofar as petitioner seeks an order that allows him “to serve the amended petition and provides that the . . . date of valuation of the corporate assets remains April 30, 2013”, the motion is denied.

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