Colorado § 7-114-301 - Grounds for judicial dissolution.

§ 7-114-301. Grounds for judicial dissolution.

(1) A corporation may be dissolved in a proceeding by the attorney general if it is established that:

(a) The corporation obtained its articles of incorporation through fraud; or

(b) The corporation has continued to exceed or abuse the authority conferred upon it by law.

(2) A corporation may be dissolved in a proceeding by a shareholder if it is established that:

(a) The directors are deadlocked in the management of the corporate affairs, the shareholders are unable to break the deadlock, and irreparable injury to the corporation is threatened or being suffered, or the business and affairs of the corporation can no longer be conducted to the advantage of the shareholders generally, because of the deadlock;

(b) The directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent;

(c) The shareholders are deadlocked in voting power and have failed, for a period that includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired or would have expired upon the election of their successors;

(d) The corporate assets are being misapplied or wasted; or

(e) The corporation has abandoned its business and has failed within a reasonable time to liquidate and distribute its assets and dissolve.

(3) A corporation may be dissolved in a proceeding by a creditor if it is established that:

(a) The creditor's claim has been reduced to judgment, the execution on the judgment has been returned unsatisfied, and the corporation is insolvent; or

(b) The corporation is insolvent and the corporation has admitted in writing that the creditor's claim is due and owing.

(4) (a) If a corporation has been dissolved by voluntary action taken under part 1 of this article 114:

(I) The corporation may bring a proceeding to wind up and liquidate its business and affairs under judicial supervision in accordance with section 7-114-302; and

(II) The attorney general, a shareholder, or a creditor, as the case may be, may bring a proceeding to wind up and liquidate the business and affairs of the corporation under judicial supervision in accordance with section 7-114-302, upon establishing the grounds set forth for that person, respectively, in subsections (1) to (3) of this section.

(b) As used in sections 7-114-302 to 7-114-304, a "proceeding to dissolve a corporation" includes a proceeding brought under this subsection (4), and a "decree of dissolution" includes an order of court entered in a proceeding under this subsection (4) which directs that the business and affairs of a corporation shall be wound up and liquidated under judicial supervision.

(5) Subsections (2)(a) to (2)(e) of this section do not apply in the case of a corporation that, on the date of the filing of the proceeding, has a class or series of shares that is:

(a) A covered security under section 18 (b)(1)(A) or 18 (b)(1)(B) of the federal "Securities Act of 1933", 15 U.S.C. sec. 77r (b)(1)(A) and 77r (b)(1)(B);

(b) Not a covered security but is traded in an organized market and has a market value of at least twenty million dollars, exclusive of the value of the shares held by the corporation's subsidiaries, senior executives, directors, and persons known to the corporation owning more than ten percent of the shares; or

(c) Issued by an open-end management investment company registered with the federal securities and exchange commission under the federal "Investment Company Act of 1940", 15 U.S.C. sec. 80a-1 et seq., and that may be redeemed at the option of the holder at net asset value.

Source: L. 93: Entire article added, p. 830, § 1, effective July 1, 1994. L. 2004: (4)(b) amended, p. 1508, § 284, effective July 1. L. 2005: IP(4)(a) amended, p. 1219, § 29, effective October 1. L. 2019: (2)(c), (2)(d), and (4)(e) amended and (2)(e) and (5) added, (SB 19-86), ch. 166, p. 1960, § 57, effective July 1, 2020.

ANNOTATION

Law reviews. For article, "1959 Amendments to the Colorado Corporation Code", see 36 Dicta 489 (1959). For article, "Corporate Insolvency — Liquidation or Rehabilitation", see 36 U. Colo. L. Rev. 117 (1963). For article, "The 1985 Proposed Revisions to the Colorado Corporation Code", see 14 Colo. Law. 34 (1985). For article, "1985 Amendments to the Colorado Corporation Code", see 14 Colo. Law. 2173 (1985).

Annotator's note. Since § 7-114-301 is similar to § 7-8-113 as it existed prior to the 1993 recodification of the "Colorado Business Corporation Act", articles 101 to 117 of title 7, cases construing that provision and its predecessors have been included in the annotations to this section.

Definition of "oppressive" conduct is intended to be broad and flexible. In the context of a close corporation, oppressive conduct by those in control is closely related to breach of the fiduciary duty owed to minority shareholders. Polk v. Hergert Land & Cattle Co., 5 P.3d 402 (Colo. App. 2000).

Conduct constituting a breach of fiduciary duty can also amount to oppression when there has been a consistent undercurrent of dealing corporate interests without notice to the shareholders and all directors that is sufficient to defeat the reasonable expectations of the shareholders that were central to the decision to join the venture. Colt v. Mt. Princeton Trout Club, Inc., 78 P.3d 1115 (Colo. App. 2003).

After involuntary dissolution of corporation, contract entered into by former officers, directors and stockholders in the name of the defunct corporation held to be an enforceable contract by individuals, and as such, their claims for breach of contract by other parties were not barred. Paulson v. Dakolios, 768 P.2d 750 (Colo. App. 1988).

Section contemplates adversary proceeding. This section, construed by the ordinary rules of interpretation, indicates plainly that an adversary, and not an ex parte, proceeding was contemplated by the general assembly in its enactment. Jones v. Bank of Leadville, 10 Colo. 464, 17 P. 272 (1887) (decided under repealed Gen. Stat. Colo. § 258).

Three-year limitation period applies where action under this section is predicated on breach of fiduciary duty. Polk v. Hergert Land & Cattle Co., 5 P.3d 402 (Colo. App. 2000).

Applied in Breniman v. Agric. Consultants, Inc., 648 P.2d 165 (Colo. App. 1982); In re Loughnane, 28 B.R. 940 (Bankr. D. Colo. 1983); Van Schaack Holdings, Ltd. v. Fulenwider, 768 P.2d 740 (Colo. App. 1988).