Corporations – Officers and Directors – Liability for Realizing Less than Full Value from Sale of Corporate Assets on Dissolution
The defendants were directors, officers, and sole stockholders of a corporation engaged in the business of wholesaling electrical supplies. The business gradually declined until the corporation was no longer able to meet maturing obligations, even though expenses had been cut to a minimum. After trying unsuccessfully to borrow more money the defendants decided to wind up the business. Faced with several possible methods of liquidation, they chose to sell the assets at an open auction sale. The net proceeds of the sale were about $20,000, while the cost of the inventory had been at least $60,000. The creditors, through the trustee in bankruptcy, sued the directors for waste of the assets under the New York statute. The appellate division decided that there had been waste, for the directors had not given the required notice to the creditors of the sale and bad not realized full value for the assets. On appeal, held, affirmed, two judges dissenting. While notice to the creditors is not required, directors must respond in damages for the amount, if any, by which less than full value is realized from the liquidation sale of a corporation’s assets. New York Credit Men’s Adjustment Bureau., Inc. v. Weiss, 305 N.Y. 1, 110 N.E. (2d) 397 (1953).