XVI. Member or Manager Liable for "post-dissolution" Claims

• Library: South Carolina Limited Liability Companies (SCBar) (2020 Ed.)

XVI. Member or Manager Liable for "Post-Dissolution" Claims

When a South Carolina LLC goes out of business, or otherwise enters into a state of dissolution, the LLC is still technically "alive." Section 33-44-802 (a) states: "Subject to subsection (b) [company elects not to dissolve], a limited liability company continues after dissolution only for the purpose of winding up its business. Section 33-44-803 then provides:

(a) After dissolution, a member who has not wrongfully dissociated may participate in winding up a limited liability company's business, but on application of any member, a member's legal representative, or transferee, the circuit court, for good cause shown, may order judicial supervision of the winding up.
(b) A legal representative of the last surviving member may wind up a limited liability company's business.
(c) A person winding up a limited liability company's business may preserve the company's business or property as a going concern for a reasonable time, prosecute and defend actions and proceedings, whether civil, criminal, or administrative, settle and close the company's business, dispose of and transfer the company's property, discharge the company's liabilities, distribute the assets of the company pursuant to Section 33-44-806, settle disputes by mediation or arbitration, and perform other necessary acts.

As noted in § 33-44-803(c), the person doing the winding up must pay the bills and only distribute the LLC property in accord with § 33-44-806. Section 33-44-806 is very specific that the person(s) doing the winding up must first pay the LLC debts, and if any funds remain, if the company is required to maintain capital accounts, to make distributions in accord with such accounts. Peculiarly, the statute does not say how distributions are to be made if the LLC is not required to maintain capital accounts. Presumably, a well-drafted LLC can provide how distributions are made after paying all the LLC's debts.

The critical point is that if the person or persons who are conducting this wind up do not follow the statutory and operating agreement requirements, the person, or persons, will again incur personal liability.

Although there are yet no South Carolina cases on point, there are two often cited cases, one from Wisconsin and one from Washington that confirm such a result. In the Wisconsin case,¹³⁴ a sister who tried to wind up her brother's failed trucking company essentially became personally liable for $1,010 plus costs. Among her many errors in dealing with the LLC's creditor during dissolution: she originally stated she would pay, that she was a partner in the business and would assume responsibility; she did not file articles of dissolution; she did not notify creditors of the business termination; she failed to follow the statutory dissolution...