Could California assess officers for business conducted after a corporation was suspended and then entered Chapter 11?

Plain-English summary

California legal staff concluded that former corporate officers could receive dual determinations for post-petition and post-confirmation liabilities when the corporation continued doing business after an FTB suspension that predated its Chapter 11 case.

The corporation was suspended on June 1, 1992 and filed Chapter 11 on December 23, 1992. Staff distinguished In re Golden Plan of California, where an FTB suspension imposed during the automatic stay was held void. Here, the suspension was already in effect when bankruptcy began, so merely continuing it did not violate the stay.

The memorandum said a debtor-in-possession had no exception allowing it to transact California business while its corporate powers remained suspended. On that basis, officers could be assessed for the corporation's post-petition liabilities and post-confirmation debt arising from continued operations.

Common questions

Why was the suspension not void under the automatic stay?

Because FTB imposed it before the corporation filed bankruptcy.

What periods could the dual determinations cover?

The memorandum identified post-petition liabilities and post-confirmation debt from operations while suspended.

Did Chapter 11 authorize the suspended corporation to keep doing business?

No, according to staff.

Citations and references

• In re Golden Plan of California (1984) 37 B.R. 167 — suspension imposed during the automatic stay distinguished
• Secretary of State suspension records — source used to establish the June 1, 1992 suspension date

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-1212.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

170.1212

Memorandum
To:

From:

Subject:

Mr. Rick A. Slater
Supervisor of Collections

Date:

December 11, 1995

Thomas J. Cooke
Staff Counsel
REDACTED TEXT
Gary Jugum has requested that I respond to your memorandum to him dated November 7, 1995, concerning the above taxpayer. In your memorandum, you state that the REDACTED TEXT District Office has requested that a dual determination be issued against the former corporate officers of REDACTED TEXT for operation of the business after suspension by the Franchise Tax Board. The Secretary of State records show that the corporation was suspended on June 1, 1992. The corporation filed Chapter 11 bankruptcy on December 23, 1992. On December 15, 1993, the corporation’s plan of reorganization was confirmed. In the case of In re Golden Plan of California (1984) 37 Bankruptcy Reporter 167, the court held that the suspension of a corporation by the Franchise Tax Board during the bankruptcy “automatic stay” was a violation of the “stay” and void. In the instant matter, REDACTED TEXT was suspended by the Franchise Tax Board prior to its bankruptcy filing. You ask if the dual determination can be issued against the corporate officers for the post-petition liabilities and post-confirmation debt of the corporation. When REDACTED TEXT filed bankruptcy, the corporation had been suspended by the Franchise Tax Board. It is not a violation of the “automatic stay” to continue the suspension during the bankruptcy proceeding. Since there was no violation of the “automatic stay,” there is no act by FTB that was “void.” Therefore, if the corporation continues to do business both during the bankruptcy proceeding and while its corporate powers are suspended by the FTB, dual determinations may be issued against the corporate officers for post-petition liabilities and for post-confirmation debt. There is no exception that allows a corporate debtor-in-possession to transact business in this state while its corporate powers are suspended.

TJC/cmm