In Wayne Johnson Electric, Inc. v. Robinson Electric Supply Co., 266 So.3d 643, the Supreme Court of Mississippi held, as a matter of first impression, that a corporation that is administratively dissolved while a lawsuit it brought is pending must be dismissed as a party, citing the 2013 revision of the Mississippi Business Corporation Act. Johnson Electric is another example of the importance of maintaining vital corporate existence, and the difficulty closely held businesses can face when facing financial difficulties while embroiled in litigation.
Johnson Electric asserted various claims against its supplier Robinson Electric and certain of its employees arising from an alleged overcharging scheme. Wayne Johnson, Jr., Johnson Electric’s principal, also filed an individual claim against the defendants. While the suit was pending, Johnson Electric was administratively dissolved for failing to file an annual report. Among other issues, Johnson Electric would have had to pay over $200,000 in back taxes in order to be reinstated. The trial court dismissed Johnson Electric from the suit in light of the dissolution, and the Supreme Court of Mississippi affirmed that decision.
The Court quoted the language of Section 79-4-14.21(f) of the Mississippi Business Corporation Act to support its decision. That Section states that “[a] corporation that has been administratively dissolved may not maintain any action, suit or proceeding in any court of this state until the corporation is reinstated.” (Emphasis added.) The Court cited a dictionary defining “maintain” as “[t]o continue (something),” which meant that Johnson Electric could not continue the suit that it had filed.
The ruling had the effect of putting a $200,000 barrier between Johnson Electric and any potential recovery from its claims, and illustrates how critical it can be for closely held companies to meet administrative requirements on an ongoing basis.
At Novack and Macey, we have extensive experience advising shareholders involved in closely held company disputes, as well as advising companies on how to avoid disputes in the first place. For more information about our services, please contact John Haarlow at 312.419.6900 or firstname.lastname@example.org.