Summary
In Del-Mar-Va Hardware Corp., creditors of the Del-Mar-Va Hardware Corporation filed a complaint against the corporation seeking the appointment of a receiver pursuant to the predecessor statute to Section 3-114 of the Corporations and Associations Article, that being Article 23, Section 80 of the Maryland Code (1957), which permitted a stockholder or creditor of an insolvent corporation to petition a court for involuntary dissolution and the appointment of a receiver.
Summary of this case from Spivery-Jones v. (In re Receivership Estate of Trans Healthcare, Inc.)Opinion
[No. 153, September Term, 1962.]
Decided January 29, 1963.
RECEIVERS — Appointment Of For Corporation — Creditors Could Not Proceed Under Code (1957), Art. 23, § 79, Where Corporation Had Not Been Dissolved, Nor Under Sec. 80, Where No Proof Of Insolvency — Creditors Without Judgments Or Liens Lacked Standing To Sue For Receiver Under Equity Court's Inherent Power To Appoint — Appointment Was Legally Unjustified Here. In the instant case the appellees who were creditors of a corporation, the appellant, filed a bill to have a receiver appointed to wind up the affairs of the corporation. The Court stated that the trial court should have sustained the demurrer to the bill rather than overruling it and that the appointment of receivers was legally unjustified. The bill explicitly sought relief under Code (1957), Art. 23, § 79, without alleging that the corporation had been dissolved. Until Articles of Dissolution have been accepted by the State, there is no dissolution of a corporation; and, until there is, the statutory power of an equity court, under Sec. 79, to appoint receivers does not come into effect, and the statute is inapplicable. The appellees contended that they did not seek appointment of a receiver under Sec. 79 of Art. 23, but rather under Sec. 80. However, the Court stated that if a court is to proceed under Sec. 80, there must be clear proof of insolvency which will justify dissolution by the court as a prelude to the appointment of a receiver. Although there was an allegation of insolvency here, there was no proof whatever that it existed. The Court felt that the order appointing receivers indicated that the court did not proceed under either Sec. 79 or Sec. 80 but, rather, exercised its inherent power to appoint a receiver where there is fraud, danger of spoliation, or imminent prospect of loss or injury to property. The appellees, as general contract creditors without liens, lacked standing to sue for this relief. There was no allegation in the bill and no proof that any creditor had obtained a judgment or a lien. Absent this, a creditor is not, under the cases, entitled to have a receiver appointed. pp. 478-480
H.C.
Decided January 29, 1963.
Appeal from the Circuit Court for Wicomico County (TAYLOR, J.).
Bill filed by Boss Manufacturing Co., and others, creditors, seeking appointment of receivers for the Del-Mar-Va Hardware Corporation. From an order overruling a demurrer to the bill and from the subsequent order appointing receivers, Del-Mar-Va Hardware Corporation appealed.
Orders reversed, with costs.
The cause was argued before HENDERSON, HAMMOND, PRESCOTT, HORNEY and MARBURY, JJ.
Henry F. Lankford for appellant.
W. Edgar Porter, with whom were Webb Travers on the brief, for appellee.
The appeal is by a corporation from an order overruling a demurrer to a bill seeking the appointment of receivers (pursuant to the right of appeal in such case given by Code (1957), Art. 5, Sec. 7 (d)) and from the subsequent order appointing receivers.
The bill filed May 7, 1962, alleges that the complainants are creditors of the corporation, which "for considerable time in the past has been unable to pay its debts in the ordinary course of business." It alleges further that the corporation's directors are attempting to liquidate it and that the complainants believe the interests of creditors and others justify the appointment of a receiver under Code (1957), Art. 23, Sec. 79. The bill prayed that a receiver be appointed to take possession of assets, reduce them to money, and make distribution among the creditors.
It is to be noted that the standard phrase as to debts — "as they become due" — was not used, but it would seem to be implicit.
A hearing in open court was set for June 29 by order of court. On that day the demurrer was overruled; and, immediately thereafter, the complainants filed a petition to require the corporation to defer filing Articles of Dissolution with the State Department of Assessment and Taxation until their application for a receiver to wind up the affairs of the corporation had been acted upon.
Then, acting apparently on the allegations of the bill and the petition to require the deferring of voluntary dissolution, Judge Taylor, without hearing testimony, appointed receivers for the corporation with instructions to give bond, to take charge of the corporation's tangible assets, collect debts due it and bring into court an inventory of all its assets and a list of all of its accounts.
It seems clear that the demurrer should have been sustained and that the appointment of receivers was legally unjustified.
The bill explicitly sought relief under Sec. 79 of Art. 23 of the Code, without alleging that the corporation had been dissolved. It is established that until Articles of Dissolution have been accepted by the State, there is no dissolution of a corporation; and, until there is, the statutory power of an equity court, under Sec. 79, to appoint receivers does not come into effect, and the statute is inapplicable. Baumohl v. Columbia Jewelry Co., 209 Md. 278, 288-289.
The appellees say appointment of a receiver was not in reality sought under Sec. 79 of Art. 23 of the Code as part of the process of voluntary dissolution, but rather under Sec. 80, which gives statutory power to an equity court — which otherwise it would lack — to dissolve a corporation and thereafter appoint a receiver, and that the parties and the lower court so treated the bill of the complainants. If a court is to proceed under Sec. 80, there must be clear proof of insolvency which will justify dissolution, as a prelude to the appointment of a receiver. Knabe v. Johnson, 107 Md. 616; Mason v. Equitable League, 77 Md. 483; Goodman v. Jedidjah Lodge, 67 Md. 117; BRUNE, MARYLAND CORPORATION LAW AND PRACTICE, Sec. 404 (Rev. Ed.).
There was an allegation of insolvency here but no proof whatever that it existed.
The order appointing receivers indicates that the court did not proceed under either Sec. 79 or Sec. 80 but, rather, exercised its inherent power to appoint a receiver where there is fraud, danger of spoliation, or imminent prospect of loss or injury to property. The complainants, as general contract creditors without liens, lacked standing to sue for this relief. There was no allegation in the bill and no proof that any creditor had obtained a judgment or a lien. Absent this, a creditor is not, under the cases, entitled to have a receiver appointed. Frigidraft, Inc. v. Michel, 198 Md. 509; Blake v. Gorsuch, 166 Md. 647, and cases cited.
Orders reversed, with costs.