Corporate Director and Shareholder Liability for Unlawful Distributions in Virginia

At a glance

Requirements one by one

Director conduct and excess amount

Va. Code § 13.1-692(A) makes a director who votes for or assents to a distribution beyond what Chapter 9 or the articles authorize personally liable to the corporation and its creditors for the amount above what could have been distributed. The claimant must establish that the director failed the § 13.1-690 conduct standard when taking the action. Section 13.1-690(A) describes good-faith business judgment of the corporation's best interests; subsection (B) sets conditions for reliance on specified information and people, and subsection (D) places the violation burden on the person alleging it.

Section 13.1-653(C) gives the ordinary distribution's post-payment debt and asset/preference tests. Subsection (H) excludes Article 16 liquidation distributions from that particular section. This cell does not decide which amount a corporation could actually pay.

Contribution and recipient recoupment

A director held liable may seek contribution from every other director who could also be liable (§ 13.1-692(B)(1)). The director may recoup from shareholders who received the unlawful distribution in proportion to the unlawful amounts each received (§ 13.1-692(B)(2)). Unlike some state provisions, that recoupment clause does not state a separate recipient-knowledge condition.

Filing periods

Section 13.1-692(C) gives two years after the right of action accrues for suit against a director under subsection (A). Subsection (D) gives contribution or recoupment a distinct one year after the claimant's liability is finally adjudicated. The different starting events matter even when both claims relate to the same payment.

What trips people up

A shareholder's receipt and a director's vote are different statutory roles. The recipient rule in § 13.1-692(B)(2) arises as the recoupment right of a director already held liable; it is not the conduct test that § 13.1-692(A) applies to directors.

Common questions

Must the claimant prove that the director failed a duty?

Yes. Section 13.1-692(A) expressly puts that condition on the party asserting liability, and § 13.1-690(D) also places the burden of proving a violation of the director standard on the person alleging it.

Does the statute fix the calendar day when a director claim accrues?

Section 13.1-692(C) uses accrual of the right of action as its trigger; it does not identify a universal calendar day. The timing of a particular claim requires the transaction record and applicable law.

Statutes and sources

• Va. Code § 13.1-653, accessed September 27, 2026: subsections (C), (E), and (H) state the ordinary limits, measurement events, and liquidation exclusion.
• Va. Code § 13.1-690, accessed September 27, 2026: subsection (A) requires discharge of duties “in accordance with his good faith business judgment of the best interests of the corporation.”
• Va. Code § 13.1-692, accessed September 27, 2026: subsection (A) sets excess director liability; subsections (B)–(D) state contribution, recoupment, and the two filing periods.