Corporate Director and Shareholder Liability for Unlawful Distributions in Alabama
At a glance
| Law, transactions, and persons | Ala. Code § 10A-2A-8.32; voting/assenting directors and knowing stockholder recipients through recoupment; § 1.40(6) includes dividends, reacquisitions, and liquidation. |
|---|---|
| Underlying prohibited distribution | § 8.32(a) cross-references § 6.40(a) ordinary distribution authority and § 14.08(a) liquidation priority; § 6.40(a) is subject to certificate and § 6.40(c) limits. |
| Director conduct and defenses | Vote or assent plus claimant-proven noncompliance with § 8.30 good-faith, best-interests, care, and qualified-reliance standards. |
| Amount, interest, and shared liability | Corporation may recover excess over amount lawfully distributable (§ 8.32(a)); section sets no interest or joint-and-several formula. |
| Who may enforce | Corporation is express beneficiary of director claim (§ 8.32(a)); section does not name creditors as direct claimants. |
| Recipient shareholder recovery | Liable director may recoup each stockholder’s pro-rata portion of unlawful amount accepted with knowledge (§ 8.32(b)(2)). |
| Contribution and dissent | Liable director may claim contribution from every other director who could be liable; § 8.32(a) requires vote or assent and failed § 8.30 conduct. |
| Filing periods | Director claim: two years from § 6.40(e)/(g) measurement, certificate-restriction violation, or § 14.08(a) liquidation distribution; contribution/recoupment: one year after final adjudication (§ 8.32(c)). |
| Related remedies and limits of this comparison | § 6.40(h) excludes Article 14 liquidation from ordinary financial test; § 14.08(a) addresses claims before liquidation distribution; no payment-specific outcome. |
Requirements one by one
Distribution scope and director conduct
Ala. Code § 10A-2A-1.40(6) defines distributions to include dividends, share purchases or redemptions, debt to stockholders, and liquidation distributions. Section 10A-2A-8.32(a) invokes two routes: distributions beyond § 10A-2A-6.40(a) ordinary authority and those beyond § 10A-2A-14.08(a) in liquidation. Section 10A-2A-6.40(a) is subject to certificate restrictions and its post-payment limits in subsection (c). Section 10A-2A-14.08(a) directs directors of a dissolved corporation to discharge or reasonably provide for claims before distributing liquidation assets to stockholders.
Section 10A-2A-8.32(a) requires a director’s vote or assent and proof by the party asserting liability that the director did not comply with § 10A-2A-8.30 when acting. Section 10A-2A-8.30 requires good faith, a reasonable belief in the corporation’s best interests, and care appropriate to the circumstances; it permits qualified reliance unless contrary knowledge makes that reliance unwarranted.
Excess recovery and stockholder recoupment
The corporation’s director claim is limited to the amount above what could have been distributed under § 10A-2A-6.40(a) or § 10A-2A-14.08(a) (§ 10A-2A-8.32(a)). A director held liable may seek contribution from every other director who could be liable. The director may also recoup from each stockholder the pro-rata portion of the unlawful amount that stockholder accepted knowing the distribution violated the cited ordinary or liquidation rule (§ 10A-2A-8.32(b)). The stockholder clause is the liable director’s recoupment right.
Separate filing periods
Section 10A-2A-8.32(c)(1) bars the director claim unless commenced within two years after one of three applicable events: the ordinary distribution’s effect was measured under § 10A-2A-6.40(e) or (g); a § 10A-2A-6.40(a) violation occurred because a certificate restriction was disregarded; or assets were distributed under § 10A-2A-14.08(a). Contribution and stockholder recoupment have a separate one-year period after the claimant’s director liability was finally adjudicated (§ 10A-2A-8.32(c)(2)). The applicable starting event depends on the statutory route.
What trips people up
Section 10A-2A-6.40(h) excludes Article 14 liquidation distributions from the ordinary financial-test section. Section 10A-2A-8.32 nonetheless expressly cross-references § 10A-2A-14.08(a), so a liquidation claim must be read through that route. The statute does not decide whether a particular payment violated either provision.
Common questions
Does a stockholder’s receipt alone establish recoupment?
No. Section 10A-2A-8.32(b)(2) requires the stockholder to have accepted the unlawful amount knowing the distribution violated § 10A-2A-6.40(a) or § 10A-2A-14.08(a).
Does the two-year period also start the director’s contribution clock?
No. Section 10A-2A-8.32(c)(2) starts the one-year contribution and recoupment period after the claimant’s liability has been finally adjudicated.
Statutes and sources
- Ala. Code § 10A-2A-1.40, accessed September 27, 2026: corporation and distribution definitions.
- Ala. Code § 10A-2A-6.40, accessed September 27, 2026: ordinary distribution limits and measurement dates.
- Ala. Code § 10A-2A-8.30, accessed September 27, 2026: director conduct and qualified reliance.
- Ala. Code § 10A-2A-14.08, accessed September 27, 2026: liquidation claims and asset distribution.
- Ala. Code § 10A-2A-8.32, accessed September 27, 2026: director liability, recoupment, and filing periods.
Source links
Every statute quoted above, linked, with the date we checked it.
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