Corporate Dissolution: Notice Requirements for Discharge of Corporate Debts

Section 12.30 of the Illinois Business Corporation Act of 1983 (“Act”) (805 ILCS 5/12.30) explains the effects of corporate dissolution. Section 12.75 of the Act (805 ILCS 5/12.75) details the notice requirements a dissolved corporation must comply with in order to remove its liabilities. These sections of the Act give shareholders expectation guidelines following their decisions to dissolve a corporation.

Section 12.30 mandates that a dissolved corporation shall not carry on any business other than what is necessary to liquidate its business and affairs, including:

1. Collecting its assets.
2. Disposing of its assets that will not be distributed to its shareholders.
3. Giving notice in accordance with Section 12.75 and discharging or making provisions to discharge its liabilities.
4. Distributing its remaining assets among its shareholders according to their interests.

A dissolved corporation may bar known claims against it, its directors, officers, employers or agents, or its shareholders or their transferees. If the dissolved corporation wishes to discharge or make provisions to discharge its liabilities, it must send a notification to the claimant within 60 days of the effective date of dissolution, relaying the following information:

1. The corporation has been dissolved and the effective date of dissolution.
2. The mailing address to which the claimant must send its claim and the essential information to be submitted with the claim.
3. The deadline, not less than 120 days from the effective date of dissolution, by which the dissolved corporation must receive the claim.
4. A statement that the claim will be barred if not received by the deadline.

If the dissolved corporation complies with the above procedures and then chooses to reject the claim entirely or in part, the corporation must notify the claimant of the rejection. The corporation must also notify the claimant that the claim shall be barred unless the claimant files suit to enforce the claim within a deadline not less than 90 days from the date of the rejection notice.

To employ this section of the Business Corporation Act, corporations should identify potential claimants and give them notice under the aforementioned procedures. A 12.75 notice is not required, but if it is given, it must be given to all known creditors, or else the director of the corporation will be at risk of personal liability in accordance with Section 8.65 of the Act. Kennedy v. Four Boys Labor Serv., Inc., 279 Ill. App. 3d 361, 664 (2d Dist. 1996); Lin Hanson, The Business Corporation Act’s “Quickie” Claim Bar Dissolving Corporations Can Use This Technique to Sharply Reduce the Period During Which They Remain Liable for Claims Against Them. But Beware Its Risks and Limitations, 96 Ill. B.J. 480 (2008).

The most important factor to keep in mind is that Section 12.75 is not a “catch-all” claim bar. A “claim” under Section 12.75 does not include contingent liability, claims arising after the effective date of dissolution, claims arising from the failure of the corporation to pay any tax or penalty, and claims arising out of criminal law violations. Nonetheless, Section 12.75 gives corporations an inexpensive option to bar known claims.