Corporate Director and Shareholder Liability for Unlawful Distributions in New York

At a glance

Requirements one by one

Covered actions and director conduct

N.Y. Bus. Corp. Law § 719(a)(1)–(3) covers dividends and other distributions contrary to § 510(a)–(b), purchases contrary to § 513, and post-dissolution asset distributions without payment or adequate provision for known liabilities, subject to the stated creditor-claim exclusion. Under § 510(a), insolvency or a certificate restriction may block a dividend; § 510(b) supplies surplus and net-profits routes. Section 513(a) separately limits a purchase, redemption, conversion, or exchange of the corporation's own shares.

A director who votes for or concurs in a listed act is jointly and severally liable under § 719(a) to the corporation for the benefit of creditors or shareholders to the extent of their injury. Section 719(e) removes that liability if the director performed the § 717(a) duty of good faith and ordinary-prudent-person care. Section 717(a) also sets conditions for reliance on specified people, statements, and committee reports.

Claimants and recipient recovery

Section 720(b) allows the corporation, receiver, bankruptcy trustee, officer, director, or judgment creditor to bring the § 719(a) action. It also points to § 626 for a shareholder, voting-trust certificate holder, or beneficial owner bringing a derivative action.

After directors pay on a successful § 719 claim, subsection (d) grants different recipient routes. For an improper dividend or other § 510 distribution, directors are subrogated against recipients who knew facts indicating lack of authorization, proportionate to receipt. For an improper share purchase, they may have the corporation rescind and recover from a seller with comparable knowledge. For a post-dissolution creditor claim, subsection (d)(3) provides subrogation against asset recipients without stating a knowledge condition.

Dissent and contribution

Section 719(b) presumes concurrence for a director present when the board or committee acts unless dissent is entered in the minutes or delivered by one of the section's timely written routes. It also gives an absent director a reasonable-time written-dissent route after learning of the action. Under subsection (c), a director against whom a claim succeeds may seek contribution from other directors who voted for or concurred.

What trips people up

The recipient remedies in § 719(d) arise after directors pay the corporation on a claim. They are not a simple one-step claim against every person who received a payment. The provision also treats an improper dividend, share purchase, and post-dissolution distribution differently.

Common questions

Does absence from the board meeting prevent presumed concurrence?

Section 719(b) presumes even an absent director concurred unless that director delivers or files a written dissent within a reasonable time after learning of the action. The section's procedure matters independently of whether the director attended.

What filing deadline does this section give?

Sections 719 and 720 do not state a specific period for the director claim or contribution. A deadline under generally applicable New York law would require a separate review; this page does not calculate one.

Statutes and sources

• N.Y. Bus. Corp. Law § 510, accessed September 27, 2026: subsection (a) restricts distributions during insolvency or contrary to the certificate; subsection (b) states the surplus and net-profits alternatives.
• N.Y. Bus. Corp. Law § 513, accessed September 27, 2026: “Shares may be purchased or redeemed only out of surplus.”
• N.Y. Bus. Corp. Law § 717, accessed September 27, 2026: a director must act “in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances.”
• N.Y. Bus. Corp. Law § 719, accessed September 27, 2026: voting or concurring directors “shall be jointly and severally liable to the corporation for the benefit of its creditors or shareholders” for resulting injury.
• N.Y. Bus. Corp. Law § 720, accessed September 27, 2026: subsection (b) identifies those who may seek § 719(a) relief.