WILLIAM A. YOUNG
and PAMELA K. YOUNG
DEBTORS CASE NO. 02-30342
Mark T. Miller, as trustee ("Trustee") of the bankruptcy estate of William A. Young and Pamela K. Young (the "Debtors"), is before the court on the Objection to Claim and Notice that he filed in this case on January 15, 2004. The objection seeks the disallowance of the claim of Kentucky Employer's Mutual Insurance Company ("KEMI") set forth in the proof of claim filed on May 19, 2003, which asserts a general unsecured claim in the amount of $6,321.46. Having considered the objection, KEMI's response and supplemental response, the proof of claim, and the arguments of the parties, the court concludes that the objection should be sustained.
The claim asserted by KEMI is for worker's compensation premiums. KEMI's response to the Trustee's objection acknowledges that the indebtedness is owed by a corporation by the name of B & B General Contracting Inc. ("B&B"), but asserts that the corporation is in bad standing with the Kentucky Secretary of State. The invoice a copy of which is attached to the response is in B&B's name; and the complaint for the premium that KEMI filed in Franklin Circuit Court in April 2002, a copy of which is also attached to the response, was filed against B&B alone.
In its supplemental response, KEMI asserts that B&B was administratively dissolved on November 1, 2000, and that that portion of the premiums that accrued after the administrative dissolution was not "necessary to wind up and liquidate its business and affairs." KEMI concludes that the post-dissolution portion of the debt is, therefore, a personal liability of Debtor William A. Young, whom KEMI asserts is B&B's sole shareholder. KEMI does not specify the extent to which the premiums accrued after dissolution, but the invoice a copy of which is attached to the original response indicates that the policy was cancelled on November 20, 2000, so it appears that a very small portion of the premiums accrued during the 19 days that the policy was in existence following the alleged administrative dissolution.
The burden of proving the validity and amount of its claim is on KEMI, just as would be the case in a state court action to recover the premiums. Raleigh v. Ill. Dep't of Rev., 530 U.S. 15 (2000); Hood v. Tenn. Student Assistance Corp. (In re Hood), 262 B.R. 412, 421 (B.A.P. 6th Cir. 2001), aff'd, 319 F.3d 755 (6th Cir.), cert. granted, 124 S. Ct. 45 (2003); see Ky. R. Civ. P. 43.01. While KEMI may be aided by a presumption arising from its execution and filing of a proof of claim, Fed. R. Bankr. P. 3001(f), that presumption is overcome by KEMI's own admission that the debt in question was incurred by, or at least in the name of, B&B.
As for the corporation's alleged dissolution, "[a] corporation administratively dissolved continues its corporate existence but may not carry on any business except that necessary to wind up and liquidate its business and affairs under KRS 271B.14-050 and notify claimants under KRS 271B.14-060 and 271B.14-070." K.R.S. § 271B.14-210(3). Kentucky law provides little guidance regarding what is "necessary to wind up and liquidate [a corporation's] business and affairs," specifying that such business includes collecting and disposing of assets, paying debts and otherwise distributing assets, and "[d]oing every other act necessary to wind up and liquidate its business and affairs." Id. § 271B.14-050(1). The court cannot say that allowing worker's compensation premiums to continue to accrue for a few days following administrative dissolution was inconsistent with the business of "winding up and liquidating [B&B's] business and affairs."
Nor do Kentucky statutes shed much light on what liability, if any, is imposed on the shareholder of a corporation that has been dissolved (administratively or otherwise) but that carries on business beyond what is "necessary to wind up and liquidate its business and affairs." Section 271B.6-220(2) of the Kentucky Revised Statutes provides: "Unless otherwise provided in the articles of incorporation, a shareholder of a corporation shall not be personally liable for the acts or debts of the corporation except that he may become personally liable by reason of his own acts or conduct." Because the corporation's existence continues after dissolution, it appears that shareholder immunity from liability also continues after dissolution - particularly administrative dissolution, which may be retroactively canceled at any time, K.R.S. § 271B.14-220. Section 271B.2-040 of the Kentucky Revised Statutes imposes personal liability on "[a]ll persons purporting to act as or on behalf of a corporation, knowing there was no incorporation under this chapter," but Section 271B.14-210(3) expressly provides that a corporation does continue to exist following administrative dissolution. While the statutes of other states impose personal liability for debts incurred after administrative dissolution under certain circumstances, (1) Kentucky statutes do not.
Although the statutes do not appear to support KEMI's position, there is case law in Kentucky holding that a corporation's shareholders have personal liability as if they were partners for post-dissolution transactions other than transactions for the purpose of winding up the corporation's affairs. Steele v. Stanley, 35 S.W.2d 867 (Ky. Ct. App. 1931) (citing Ewald Iron Co. v. Commonwealth, 131 S.W. 774 (Ky. Ct. App. 1910) (applying former statute to hold shareholder liable for transactions in corporation's name following expiration of articles of incorporation)). It appears from this decision that the Kentucky courts, when faced with the issue presented here, may well conclude that KRS Section 271B.2-040, imposing personal liability on those purporting to act on behalf of a nonexistent corporation, applies to actions taken following administrative dissolution of a corporation that go beyond what is "necessary to wind up and liquidate its business and affairs." However, even if the statute does apply to ultra vires acts following administrative dissolution, the evidence does not indicate that the indebtedness in question resulted from any act that Mr. Young purported to take on behalf of B&B after November 1, 2000. Rather, it appears that the continuing accrual of premiums did not result from the post-dissolution act of any individual, and there is no question that it did not result from action by Mr. Young purportedly on behalf of the corporation. Moreover, again, KEMI has not even alleged what portion of the premiums accrued after B&B's alleged administrative dissolution.
For the foregoing reasons, the court will enter a separate order sustaining the Trustee's objection to the allowance of the claim asserted by KEMI's proof of claim.
Mark T. Miller, Trustee
Ellen Arvin Kennedy, Esq.
John C. Ryan, Esq.
1. For example, Florida has an "administrative dissolution" statute that is substantially identical to KRS Section 271B.14-210, but appends the following additional subsection:
A director, officer, or agent of a corporation dissolved pursuant to this section, purporting to act on behalf of the corporation, is personally liable for the debts, obligations, and liabilities of the corporation arising from such action and incurred subsequent to the corporation's administrative dissolution only if he or she has actual notice of the administrative dissolution at the time such action is taken; but such liability shall be terminated upon the ratification of such action by the corporation's board of directors or shareholder subsequent to the reinstatement of the corporation under §§ 607.1401-607.14401.
Fla. Stat. Ann. § 607.1421(4).