CopyCited 54 times | Published | United States Bankruptcy Court, M.D. Florida | 14 Fla. L. Weekly Fed. B 23, 43 U.C.C. Rep. Serv. 2d (West) 23, 2000 Bankr. LEXIS 1352, 2000 WL 1716185
...n the debtor satisfied the M & D note in derogation of the confirmed plan. 3. Payment of dividends by an insolvent corporation. The unsecured creditors committee seeks to recover damages from Morrow, Angle, and King on a theory that, in violation of Section 607.06401, Florida Statutes, the debtor made impermissible dividend distributions disguised as guaranty fees and interest upcharges to its shareholders at a time when the debtor was insolvent. Section 607.06401(3), Florida Statutes, provides that: No distribution may be made if, after giving it effect: (a) The corporation would not be able to pay its debts as they become due in the usual course of business; or (b) The corporation's total a...
...ing II. Accordingly, the plaintiff has satisfied its burden of persuasion by a preponderance of the evidence that each and all of the debtor's payments to TKA of guaranty fees and interest upcharges were impermissible dividends within the meaning of Section 607.06401, Florida Statutes....
...They also include the guaranty fees that TKA charged to the debtor on account of the C & S line of credit. The court determined in Section V.F.3. above that the debtor's payments to TKA of interest upcharges and guaranty fees, in the total amount of $33,625.82, were impermissible dividends within the meaning of Section 607.06401, Florida Statutes....
...g breached their fiduciary duties of care when they caused the debtor to borrow monies from TKA at an unnecessarily high interest rate and required the payment of interest upcharges and guaranty fees to TKA as impermissible dividends in violation of Section 607.06401, Florida Statutes....
CopyCited 25 times | Published | Supreme Court of Florida | 2005 WL 2230403
...Further, we analyze whether and under what circumstances undistributed "pass-through" income that has been retained by a corporation for corporate purposes constitutes income within the meaning of chapter 61. Finally, we review the Fifth District's decision in the present case. I. Subchapter S Revision Act of 1982 and Section 607.06401, Florida Statutes (2004) The Subchapter S Revision Act of 1982 (the "Act") allows a small business corporation to elect to have all of the corporation's income, deductions, losses, and credits pass through to the shareholders of the...
...sarily receive distributions in an amount equivalent to what is taxed pursuant to the Subchapter S election. In Florida, an S corporation's authority to make distributions to shareholders is limited by the corporation's articles of incorporation and section 607.06401, Florida Statutes (2004). Section 607.06401 prohibits a corporation from making distributions in certain circumstances and provides in pertinent part that (3) No distribution may be made if, after giving it effect: (a) The corporation would not be able to pay its debts as the...
...the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution. § 607.06401(3), Fla. Stat. (2004). Thus, section 607.06401(3) prohibits distributions that would render the corporation unable to fulfill its corporate duties to its debtors and shareholders....
...vailable to a spouse. The income reported on an individual federal income tax return for a shareholder-spouse of an S corporation is not necessarily equivalent to the income available to the shareholder-spouse. As discussed above, in accordance with section 607.06401(3), an S corporation is prohibited from making distributions of income under certain circumstances, despite the fact that "pass-through" income has been taxed to shareholders on their individual federal income tax returns. Even if an S corporation is not expressly prohibited by section 607.06401(3) from distributing some or all of its "pass-through" income, the corporation may nonetheless determine that a distribution cannot be made and that the income should be retained for corporate purposes....
...Attributing to a shareholder-spouse income that has been retained by a corporation for corporate purposes does not provide a workable framework for trial courts to assess either the needs of a spouse or a spouse's ability to pay. Moreover, ascertaining whether a corporation was prohibited from making a distribution under section 607.06401(3) or whether undistributed "pass-through" income was retained for corporate purposes involves factual determinations that are properly made on a case-by-case basis....
..."pass-through" income was retained for corporate purposes, the trial court should consider (1) the extent to which a shareholder-spouse has access to or control over "pass-through" income retained by the corporation, (2) the limitations set forth in section 607.06401(3) governing corporate distributions to shareholders, and (3) the purpose(s) for which the "pass-through" income has been retained by the corporation....
...As stated above, we conclude that when the issue of whether undistributed "pass-through" income was retained for corporate purposes is contested, the burden should be on the shareholder-spouse, in this case the husband, to prove that the undistributed "pass-through" income was retained pursuant to the requirements of section 607.06401(3) or for other corporate purposes....
CopyCited 17 times | Published | Court of Appeals for the Eleventh Circuit | 2015 WL 4461615
...As a consequence, NJC never made a
distribution to Cox and Cox never relinquished its shares. Although at all times a
∗
Honorable Patrick E. Higginbotham, United States Circuit Judge for the Fifth
Circuit, sitting by designation.
1
Florida Statutes §
607.1436.
2
Florida Statutes §
607.06401.
2
Case: 14-14115 Date Filed: 07/22/2015 Page: 3 of 41
shareholder, Cox attempts to prosecute its claim as a creditor of the now-defunct
company.
A prior...
...We held, in accordance with section
607.1436(8), that
the election-to-purchase statute “require[s] that any payment made as a result of a
corporation’s share repurchase decision [must] comply with the distribution
requirements of [Florida Statutes §
607.06401], which prohibits the distribution of
corporate assets to a shareholder if it would render the corporation insolvent.” 76
We further held “that Cox qualifies as a shareholder for purposes of the
distributions-to-shareholders statute,” and mandated that the district court “must
consider whether a payment to Cox would comply with the insolvency test
[provided for at section
607.06401(3)] at the time of payment to Cox.”77 We
directed that “[i]f on remand the district court finds a distribution to Cox would
75
Cox Enters., Inc....
...seq., largely tracks the language of the Model Business Corporation Act. Florida’s
election-to-purchase statute requires that “[a]ny payment by the corporation
pursuant to an order under subsection (3) or subsection (5) . . . is subject to the
provisions of [section] 607.06401,” the distributions-to-shareholders statute....
...The date money or other property is transferred or debt incurred by
the corporation, or
2. The date the shareholder ceases to be a shareholder with respect to
the acquired shares . . . . 97
95
See Fla. Stat. at § 607.06401(3) (treating senior liquidation preferences as liabilities
unless the articles of incorporation provide otherwise)....
...dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution
of shareholders whose preferential rights are superior to those
receiving the distribution.
96
Id. at § 607.06401(6).
97
Id. at § 607.06401(6)(a).
29
Case: 14-14115 Date Filed: 07/22/2015 Page: 30 of 41
In short, where the default timing provisions apply a corporation cannot purchase
shares by making...
...In essence, the statutory structure affords an alternative to a
corporation, allowing it to make an otherwise forbidden distribution of
indebtedness by kicking down the road assessment of the insolvency test, which
operates as to each future payment on the debt. 99 The exception provides that
98
Id. at § 607.06401(8).
99
See Model Business Corporation Act § 6.40, Comment 8.B (“[I]t is anticipated that
[the subsection (8) exception] will be applicable most frequently to permit the
reacquisition of shares of the corporation at a time when the...
...shall be
made within 10 days after the date the order becomes final unless, before that time,
the corporation files with the court a notice of its intention to adopt articles of
dissolution,”102 the parties in this case repeatedly—and jointly—requested and
100
Fla. Stat. §
607.06401(8) (emphasis added).
101
Cox II,
666 F.3d at 707-08.
102
Fla....
...long after the purchase order issued.
Third, and admittedly cutting somewhat against this court’s reasoning in Cox
II, the purchase order did not contain on its face terms explicitly invoking the
105
See Cox II,
666 F.3d at 700.
106
Id. at §
607.06401(6)(a) (emphasis added).
107
Cf....
...To the extent that the relevant distribution in this case constitutes a
distribution of indebtedness from NJC to Cox at the time the purchase order issued,
such a distribution would have been forbidden unless analyzed under the
subsection (8) exception.
108
Fla. Stat. § 607.06401(8) (emphasis added).
109
See NJC Consolidated Balance Sheets for 2005, 2006, 2007, and 2008, supra notes 34
& 38.
34
Case: 14-14115 Date Filed: 07/22/2015 Page: 35 of 4...
...viewed in isolation because the terms of the purchase order itself do not expressly
invoke the subsection (8) exception. What Cox looks past is the prior panel’s
simultaneous emphasis on the “overall scheme” set forth in sections
607.1436 and
607.06401 and that scheme’s interaction with the unique circumstances of this
case.110 Again, to our eyes, to the extent that the relevant distribution in this case
constitutes a distribution of indebtedness from NJC to Cox at the time the purcha...
...113 We understand that in its effort to
resolve that conflict the prior panel sought to “give effect to the Florida
legislature’s intent and accord meaning to all parts of the statute” by interpreting a
“payment” made pursuant to a purchase order under section
607.1436(5) to qualify
as a “payment” under section
607.06401(8) that must undergo the insolvency test
as assessed at the time of “payment.” 114
Acknowledging the purchase of alternative interpretations, in light of the
imperfect fit between the unique circumstances of this cas...
...Cox next argues that even if distribution according to the terms of the
purchase order is barred by the insolvency test, its resulting claim in the assets of
NJC held by the receiver must be treated “at parity” with that of PBGC. Cox relies
on section 607.06401(7), which provides that “[a] corporation’s indebtedness to a
shareholder incurred by reason of a distribution made in accordance with this
section is at parity with the corporation’s indebtedness to its general, unsecured
c...
...if our prior opinion determined, explicitly or by necessary implication, [the
relevant issue].”).
116
Cox II,
666 F.3d at 700-01.
38
Case: 14-14115 Date Filed: 07/22/2015 Page: 39 of 41
607.06401(7) by name, it explicitly resolved the matter of relative claim priority
when it directed that “[i]f on remand the district court finds a distribution to Cox
would violate [the insolvency test], [NJC’s] other creditors should receive...
CopyCited 16 times | Published | District Court, S.D. Florida | 1994 WL 261378
...extremely poor, in order to conceal their mismanagement of Southeast from its shareholders. See Second Amended Complaint at ¶¶ 51-53. The Defendants assert that these averments fail to state a claim because said payments did not violate Fla.Stat. § 607.06401(3), the Florida statute governing the declaration and payment of dividends, and because said dividends were nondiscriminatory in nature....
...ding the dividend payments, this Court can not say at this juncture that the Trustee can prove no set of facts to support a claim. The Defendants strenuously argue that there can be no liability where the payment of dividends complied with Fla.Stat. § 607.06401(3)....
CopyCited 4 times | Published | Florida 2nd District Court of Appeal | 2007 WL 1373764
...To determine whether the shareholder-spouse has met this burden, the trial court should consider: (1) the extent to which a shareholder-spouse has access to or control over "pass-through" income retained by the corporation, (2) the limitations set forth in section 607.06401(3) governing corporate distributions to shareholders, and (3) the purpose(s) for which the "pass-through" income has been retained by the corporation....
...The loss of management, outdated inventory, and failed investments could affect the *92 company's ability to pay its debts. Thus, the trial court could reasonably conclude that the company retained its resources to meet its business obligations and survive. See § 607.06401(3)(a), Fla....
CopyCited 2 times | Published | Florida 2nd District Court of Appeal | 2017 Fla. App. LEXIS 3737
...do not necessarily receive distributions in an amount
equivalent to what is taxed pursuant to the Subchapter S
election. In Florida, an S corporation's authority to make
distributions to shareholders is limited by the corporation's
articles of incorporation and section 607.06401, Florida
Statutes (2004). Section 607.06401 prohibits a corporation
from making distributions in certain circumstances and
provides in pertinent part that
(3) No distribution may be made if, after giving
it effect:
(a) The corporation would not be able to...
...e time of
the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose
preferential rights are superior to those
receiving the distribution.
- 17 -
§ 607.06401(3), Fla. Stat. (2004). Thus, section
607.06401(3) prohibits distributions that would render the
corporation unable to fulfill its corporate duties to its debtors
[sic] and shareholders....
...oses, the
trial court should consider (1) the extent to which a
shareholder-spouse has access to or control over "pass-
through" income retained by the corporation, (2) the
limitations set forth in section 607.06401(3) governing
corporate distributions to shareholders, and (3) the
purpose(s) for which the "pass-through" income has been
retained by the corporation....
CopyPublished | Court of Appeals for the Eleventh Circuit
Argued: Apr 17, 2024
...amount that would be needed, if the corporation
were to be dissolved and wound up at the time of
the distribution, to satisfy the preferential rights
upon dissolution . . . .
Fla. Stat § 607.06401(3).
“A corporation that has been administratively dissolved con-
tinues in existence but may only carry on activities necessary to
wind up its activities and affairs, liquidate and distribute its assets,
and notify claimants ....
...statutory Rule of Priorities. Under Florida’s Rule of Priorities, Flor-
ida corporations cannot make distributions to shareholders if doing
so would make the corporation unable to pay its debts as they be-
come due. See Fla. Stat. § 607.06401(3)(a)....
CopyPublished | District Court, S.D. Florida | 1994 U.S. Dist. LEXIS 6551
...ding the dividend payments, this Court can not say at this juncture that the Trustee can prove no set of facts to support a claim. The Defendants strenuously argue that there can be no liability where the payment of dividends complied with Fla.Stat. § 607.06401(3)....
CopyPublished | Florida 6th District Court of Appeal
the limitations set forth in section
607.06401(3) governing corporate distributions
CopyPublished | Court of Appeals for the Eleventh Circuit | 2012 WL 11015
...After thorough review, we vacate this order by the district court. We interpret
Florida’s election-to-purchase statute to require that any payment made as a result of
a corporation’s share repurchase decision comply with the distribution requirements
of Fla. Stat. § 607.06401, which prohibits the distribution of corporate assets to a
shareholder if it would render the corporation insolvent. Because we consider any
payment to Cox a distribution to a shareholder within the meaning of § 607.06401,
the district court erred when it ordered the distribution of all of News-Journal’s assets
to Cox without applying the insolvency test contained in § 607.06401....
...§
607.1436(6).
The statute, however, places an important condition on these payments.
Subsection (8) provides: “Any payment by the corporation pursuant to an order under
subsection (3) or subsection (5), other than an award of fees and expenses pursuant
to subsection (5), is subject to the provisions of s.
607.06401.” Fla. Stat.
§
607.1436(8). Therefore payments made pursuant to a repurchase order must
comply with Fla. Stat. §
607.06401, which governs the distribution of corporate assets
to shareholders.
This distributions-to-shareholders statute creates a scheme focused on the
corporation’s solvency to evaluate the propriety of distributions to shareholders....
...corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution.
10
Fla. Stat. § 607.06401(3). Section 607.06401, by placing restrictions on the
distribution of corporate assets, maintains the fundamental tenet of corporate law that
creditors’ claims on corporate assets are superior to claims of shareholders. To
achieve this, a distribution of corporate assets to a shareholder must not result in the
violation of one of these insolvency tests contained in Fla. Stat. § 607.06401(3)....
...The date money or other property is transferred or debt
incurred by the corporation, or
2. The date the shareholder ceases to be a shareholder with
respect to the acquired shares . . . .
Fla. Stat. § 607.06401(6) (emphasis added). The exception contained in
§ 607.06401(8) contains a different timing provision. It provides, “If the
indebtedness is issued as a distribution, each payment of principal or interest is
treated as a distribution, the effect of which is measured on the date the payment is
actually made.” Fla. Stat. § 607.06401(8) (emphasis added)....
...of the
11
distributions-to-shareholders statute judged at the time dictated by the distributions-
to-shareholders statute.
With these specific statutory provisions of Fla. Stat. §
607.1436 and
§
607.06401 in mind, the overall scheme envisioned by the election-to-purchase
statute may be summarized as follows: First, if a shareholder petitions the court for
dissolution of a corporation, the corporation may elect to purchase the petitioning
shareholder’s shares for fair value....
...Court under subsection (5) and must bear the consequences—if any—for this action.”
5
Subsection (8) states, “Any payment by the corporation pursuant to an order under . . .
subsection (5) . . . is subject to the provisions of s. 607.06401.” Fla....
...this distribution would
violate Florida’s distributions-to-shareholders statute. As explained above, that
statute prohibits distributions to a shareholder if, after giving the distribution effect,
the corporation would be insolvent. Fla. Stat. § 607.06401(3)....
...the petitioning shareholder
shall no longer have any rights or status as a shareholder of the corporation . . . .” Fla.
Stat. §
607.1436(6). Yet, the distributions-to-shareholders statute cross-referenced
by subsection (8) only governs distributions to shareholders. See Fla. Stat.
§
607.06401(1) (“A board of directors may authorize and the corporation may make
distributions to its shareholders subject to ....
... It has no effect in the event of a shareholder repurchase because subsection (8) only
deals with distributions by the corporation. See Fla. Stat. §
607.1436(8) (“Any
payment by the corporation pursuant to an order under . . . subsection (5) . . .is
subject to the provisions of s.
607.06401.” (emphasis added))....
...21
satisfy Florida’s distributions-to-shareholders statute. This requires that we consider
the application of that statute to this case.
D. Date to Measure News-Journal’s Insolvency Under Fla. Stat. § 607.06401
As mentioned previously, Florida’s distributions-to-shareholders statute forbids
distributions by the corporation to shareholders if those distributions would render
the corporation insolvent. The parties here dispute when the court should evaluate
News-Journal’s insolvency. Cox asserts that News-Journal’s solvency should be
measured as of September 2006 based on § 607.06401(6), which states that the effect
of a distribution is generally measured on the date the corporation incurs a debt or the
date a shareholder ceases to be a shareholder.7 PBGC suggests that § 607.06401(8)
requires solvency be measured on the date of payment. As we have already
highlighted, § 607.06401(6) applies “[e]xcept as provided in subsection (8).” If
subsection (8) applies in this case, then PBGC correctly recognizes that the effect of
a distribution to Cox is measured on the date of payment.
7
Subsect...
...The date money or other property is transferred or debt incurred by the
corporation, or
2. The date the shareholder ceases to be a shareholder with respect to the
acquired shares . . . .”
Fla. Stat. § 607.06401(6).
22
Section 607.06401(8) provides, “If the indebtedness is issued as a distribution,
each payment of principal or interest is treated as a distribution, the effect of which
is measured on the date the payment is actually made.” Fla. Stat. § 607.06401(8).
PBGC contends that the court’s September 2006 repurchase order created an
indebtedness by News-Journal to Cox so News-Journal’s solvency should be
measured on the date of payment. We agree. Once the district court’s September
2006 repurchase order became final, News-Journal had a debt of $129.2 million owed
Cox to be paid in regular installments. This indebtedness of News-Journal triggered
the timing provision of § 607.06401(8)....
CopyPublished | Florida 1st District Court of Appeal | 2006 Fla. App. LEXIS 423, 2006 WL 141406
...ary duties, statutory restrictions, and the availability of, access to, and control over, income personally for distribution for non-corporate purposes, which are matters appropriate for the trial court to determine in its fact-finding capacity. See § 607.06401(1) & (3), Fla....
