'Reasonable Expectations' Define Board Power to Liquidate a Solvent Close Corporation in Bankruptcy

Abstract

This Article will argue that, in the absence of contrary provisions in the articles of incorporation, the power of the board of directors of a solvent close corporation to file a voluntary petition for liquidation in bankruptcy must be determined by the theory of "reasonable expectations." This doctrine not only addresses wrongdoing by those in control, but also defines the power and rights of close corporation participants. Part II briefly considers the uses of bankruptcy in recent years and comments on the peculiar occasion of a solvent corporation deciding to liquidate in bankruptcy. Part III summarizes the facts and identifies the two grounds on which the bankruptcy petition in Quarter Moon should have been dismissed. Parts IV and V explain how the case should have been resolved under the corporation and bankruptcy doctrines. Finally, Part VI concludes with suggestions.