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GWarren For Business & Nonprofits
GWarren For Business & Nonprofits, Attorney
Category: Business Law
Satisfied Customers: 355
Experience:  30 yrs Counsel, AVP Corp Governance Fortune 100 finance/ins, Nonprofit Bds, law firm. OH NJ license
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I am the president of a small New Jersey corporation that had

Resolved Question:

I am the president of a small New Jersey corporation that had been a manufacturer and a tenant in a New Jersey location since the 1950’s.

While still a tenant, in approximately 2002, we began our effort to comply with ISRA (Industrial Site Recovery Act) with respect to the property where we were a tenant. In 2003 we permanently ceased manufacturing, terminated our lease, and vacated the property.

Our effort to satisfy the New Jersey Department of Environmental Protection has continued, however. As our proposals have been agreed to by the state, we have executed them. This back-and-forth between the corporation (via its consultant) and the state continues to this day.

My question is: would the “ISRA relationship” between the corporation and the state of New Jersey impinge upon dissolution of the corporation, should we decide to dissolve it? Similarly, would the state have recourse to the corporation’s stockholders before, during, or after dissolution?
Submitted: 5 years ago.
Category: Business Law
Expert:  GWarren For Business & Nonprofits replied 5 years ago.
Thank you for contacting justanswer.

1. The N.J.A.C. 7:26B Industrial Site Recovery Act (ISRA) Rules address the dissolution or potential dissolution of a company.

In addition to the several formalities of notification to the Secretary of State, any local dissolution notice and other usual procedures for dissolution of a corporate entity in New Jersey, the ISRA requires pre-notice and notification requirements prior to dissolution of the corporation as follows: (Please see especially 7:26B-3.2(a)4 below)

"SUBCHAPTER 3. GENERAL INFORMATION NOTICE
7:26B-3.1 Prenotice filing conference
The Department shall, upon request of any owner or operator of an industrial establishment with an impending closing of operations or transfer of ownership or operations of an industrial establishment, meet with the owner or operator to discuss compliance with the provisions of ISRA and this chapter."

"7:26B-3.2 Notification requirements
(a) An owner or operator planning to close operations or transfer ownership or operations of an industrial establishment shall submit a completed General Information Notice to the Department pursuant to N.J.A.C. 7:26B-3.3, within five calendar days after to the occurrence of any of the transactional events provided below:
1. The close of operations of an industrial establishment or the owner's or
operator's public release of its decision to close operations, whichever occurs first;
2. The execution of an agreement by the owner or operator to transfer ownership
or operations of the industrial establishment;
3. The signing of an agreement of sale, or the execution of a lease for a period of
99 years or longer, for the industrial establishment or the real property of the industrial
establishment;
4. The effective time of corporate dissolution as specified at N.J.S.A. 14A:12-8,
or upon the filing of a certificate of dissolution in the office of the Secretary of State,
whichever occurs first;"

To further clarify item 4 above, under NJSA 14A:12-8 the Effective Time of Dissolution is as follows:

"14A:12-8. Effective time of dissolution.
A corporation is dissolved
(a) when the period of duration stated in the corporation's certificate of incorporation expires and the corporation files a certificate of dissolution in the office of the Secretary of State pursuant to section 14A:12-5.1; or
(b) upon the proclamation of the Secretary of State issued pursuant to section 54:11-2 of the Revised Statutes; or
(c) when a certificate of dissolution is filed in the office of the Secretary of State pursuant to section 14A:12-2, 14A:12-3, 14A:12-4 or 14A:12-5, except when a later time not to exceed 90 days after the date of filing is specified in the certificate of dissolution; or
(d) when a judgment of forfeiture of corporate franchises or of dissolution is entered by a court of competent jurisdiction."


Following is a direct link to the Rules for your review and reference:

http://www.nj.gov/dep/srp/regs/isra/israrule.pdf

2. As to whether the state would have recourse to the corporation's shareholders during any stage of the corporations existence or following its dissolution, recourse would typically be limited to the shareholders' interests and investments in the corporation, which may remain at risk, generally until dissolution. The ISRA Rules provide that if there is a transfer of ownership or operations the applicant must identify whether the transaction involves the transfer of stock.

The focus of the Rules and a proper course to resolve any question regarding the continued existence of the corporation and its proper dissolution, appears to be on promoting effective dialogue with the NJ Department prior to dissolution to avoid surprises and to ensure that all parties are appropriately communicating and considering that intention.

I hope this is responsive to your question. If you would like further clarification, please let me know.
Customer: replied 5 years ago.
[I have attempted to edit the text that you have provided in order to simplify it for myself. Because the termination of industrial activity occurred 6 years ago and has been well-known to the EPA I have pruned related language. I have also stripped mention of sale or transfer of ownership, because neither will occur. In other places I have added comments or questions. I am left with the following and would appreciate your advising whether I seem to be “getting it”. I’ve put my comments in brackets.]

1. The N.J.A.C. 7:26B Industrial Site Recovery Act (ISRA) Rules address the dissolution or potential dissolution of a company.

In addition to the several formalities of notification to the Secretary of State, any local dissolution notice and other usual procedures for dissolution of a corporate entity in New Jersey, the ISRA requires pre-notice and notification requirements prior to dissolution of the corporation as follows: (Please see especially 7:26B-3.2(a)4 below)

4. The effective time of corporate dissolution as specified at N.J.S.A. 14A:12-8,
or upon the filing of a certificate of dissolution in the office of the Secretary of State,
whichever occurs first;"

A corporation is dissolved
(a) when the period of duration stated in the corporation's certificate of incorporation [if there is a period of duration, it would not seem to be a trigger event in my scenario] expires and the corporation files a certificate of dissolution in the office of the Secretary of State pursuant to section 14A:12-5.1; or
(b) upon the proclamation of the Secretary of State issued pursuant to section 54:11-2 of the Revised Statutes; [what?] or
(c) when a certificate of dissolution is filed [this would appear to apply to my question, because here, in (c), filing appears to be at the initiative of the corporation] in the office of the Secretary of State pursuant to section 14A:12-2, 14A:12-3, 14A:12-4 or 14A:12-5, except when a later time not to exceed 90 days after the date of filing is specified in the certificate of dissolution; or
(d) when a judgment of forfeiture of corporate franchises or of dissolution is entered by a court of competent jurisdiction." [In my question to you, this would only seem to apply if the NJ Department wishes to prevent dissolution and a court rules against their wishes?]

2. As to whether the state would have recourse to the corporation's shareholders during any stage of the corporations existence or following its dissolution, recourse would typically be limited to the shareholders' interests [for example, if a shareholder owned 10% of the net equity and if all assets together were worth $100, the state’s recourse would be limited to that shareholder’s $10, and by extension its recourse would be limited to the net equity of the entire corporation?] and investments in the corporation, which may remain at risk, generally until dissolution.

The focus of the Rules and a proper course to resolve any question regarding the continued existence of the corporation and its proper dissolution, appears to be on promoting effective dialogue with the NJ Department prior to dissolution to avoid surprises and to ensure that all parties are appropriately communicating and considering that intention. [In other words, the Rules are designed to give the NJ Department an opportunity to influence dissolution?]

Expert:  GWarren For Business & Nonprofits replied 5 years ago.
Thank you for your reply. Although I provided the entire text of the law, you are correct that the portions that would appear to apply to your situation can be simply stated as follows:

1. The ISRA Rules require that once you advise the Department that you intend to dissolve the corporation the Department is required to meet with you to discuss any ISRA compliance issues prior to dissolution.
2. Then [you are correct 4(c) appears to apply to your situation] within 5 days of your filing of a certificate of dissolution in the office of the Secretary of State (I an provide you with the dissolution form upon request) you must file a General Information Notice to the Department (the Notice requirements are listed on pages 37 and 38 of the Rules link that I provided in the initial answer - I can print them separately in a further answer if you prefer by reply).

Your further interpretation that only the net equity (and shareholder contributions in that regard) would remain at risk if there was any further recourse by the Department/State.

Finally, your interpretation is also correct that the Rules appear intended to provide the Department with an opportunity prior to the dissolution to discuss any remaining compliance issues that may or may not impact dissolution (such as recourse to any remaining equity).

Thank you for the opportunity to clarify and simplify the impact of the law and ISRA Rule. I hope this summary is helpful.
Customer: replied 5 years ago.
You wrote, “Your further interpretation that only the net equity (and shareholder contributions in that regard) would remain at risk if there was any further recourse by the Department/State.” Did you mean to say, “Your further interpretation that only the net equity (and shareholder contributions in that regard) would remain at risk if there was any further recourse by the Department/State IS CORRECT.”?

You also wrote, “Finally, your interpretation is also correct that the Rules appear intended to provide the Department with an opportunity prior to the dissolution to discuss any remaining compliance issues that may or may not impact dissolution (such as recourse to any remaining equity).”

I didn’t use the word “discuss”; I used the word “influence”. If the Department ultimately has recourse to the corporation’s assets, it must acquire it by the consent of the corporation, or by some other means. If the mandatory Department/corporation chat does not result in the corporation’s consent, how does the Department gain access to the remaining equity?

Perhaps you have not had first-hand experience in this obscure aspect of this large subject?   Please tell me whatever you know, and I’ll hit the money button.

Thanks.

Expert:  GWarren For Business & Nonprofits replied 5 years ago.
I appreciate your reply for clarification. Thank you. XXXXX omitted "is correct" following "interpretation" and apologize for that omission. Certainly "influence" may have a broader role than the pre-conference "discuss" as the discussion relates to compliance. Whether the Department/State can influence or enforce compliance by causing the corporation to disgorge any remaining assets prior to dissolution appears to be an unresolved question. There may be court cases in that regard, however, I did not observe specific requirements in the Rules, only that the Department have an opportunity to discuss compliance prior to dissolution. If you would like me to research that issue further, please let me know.
GWarren For Business & Nonprofits, Attorney
Category: Business Law
Satisfied Customers: 355
Experience: 30 yrs Counsel, AVP Corp Governance Fortune 100 finance/ins, Nonprofit Bds, law firm. OH NJ license
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30 yrs Counsel, AVP Corp Governance Fortune 100 finance/ins, Nonprofit Bds, law firm. OH NJ license