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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: February 25, 2019

Court Appoints Temporary Receiver Over Deadlocked Corporation

On January 31, 2019, Justice Platkin of the Albany County Commercial Division issued a decision in Matter of Papakonstadinou (Gozzer Corp.), 2019 NY Slip Op. 50164(U), appointing a temporary receiver over a deadlocked corporation, explaining:

The Court finds that petitioner has demonstrated that the appointment of a temporary receiver is warranted to protect and preserve the assets of Gozzer Corp. The record convincingly demonstrates that there is no oversight or supervision of the Corporation’s affairs by the shareholders or a functional board of directors. Indeed, the 95% shareholder/co-director has been frozen out of the Corporation for years, and Sparakis concedes that the most substantial remaining asset of the Corporation — the Premises — is being used to operate competing construction businesses.

The Court further finds that it would be appropriate for the temporary receiver to examine the sale of the Premises and the Druthers offer, to the extent it still remains open, and to report back to the Court and the parties with suitable recommendations. Gozzer Corp., which has been effectively inactive since November 2015, has no present use for the Premises, and the Court does not believe that the alleged disruption, inconvenience and expense to Gozzer Corp.’s competitors is entitled to any significant weight in the absence of persuasive evidence to substantiate Sparakis and Gozzer’s claim of rightful ownership of the Corporation or the Premises, which they have failed to adduce. Moreover, Sparakis concedes that the Druthers offer is well in excess of the property’s current market value.

The appointment of the temporary receiver and the receiver’s due diligence regarding a sale of the Premises can be conducted in parallel with other significant events in this litigation and in the Queens County Action. Specifically, apart from issues of temporary relief, the next step in this proceeding is joinder of issue and prompt determination of petitioner’s dissolution claims. Meanwhile, as Sparakis and Gozzer emphasize, the reality is that the Queens County case is still currently scheduled for trial on April 1, 2019.

Thus, by the time a receiver is appointed and qualified and has had the opportunity to examine the advisability of a sale of the Premises, it may be possible to have a ruling on dissolution in this proceeding, together with a verdict and accounting in the Queens County Action that can guide the work of the receiver should the application for dissolution be granted. And even if some or all of these issues are not decided by the time of the receiver’s report, the Court’s decision on a favorable sale recommendation from the receiver (if one is received) can be informed by, among other things, the present status of the cases and the potential prejudice to Sparakis and Gozzer that may result from allowing a sale of the Premises pendente lite.

Finally, given the appointment of a temporary receiver, an injunction pursuant to BCL §1115(a)(1), restraining the Corporation and its directors and officers from transacting any business and from exercising any corporate powers, is warranted.

(Internal quotations and citations omitted).

This decision relates to a significant part of our practice: business divorce (a break-up between the owners of a closely-held business). Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a business divorce.

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