Court Opinion

ID: 5089445
Source: CourtListenerOpinion
Date Created: 2021-10-01 15:04:47.92534+00
Date Added: 2024-06-11T08:20:33.915384
License: Public Domain

LAMBERT, Justice,
dissenting.
In my view, the issue which should determine the outcome here is whether dividends declared and paid under the mistaken belief that an insurer is solvent may be properly retained by the shareholder/recipient or whether such dividends should be considered a mere windfall subject to recoupment upon discovery of insolvency at the time payment was made. Kentucky law has not heretofore spoken directly to this issue and as a result, this cause has been certified by the United States Court of Appeals for the Second Circuit.
It is unnecessary to belabor the point. I would adopt the analysis of the Franklin Circuit Court as follows:
To interpret the cited provisions of the Kentucky Revised Statutes in the manner advocated by NDCC would permit shareholders of a corporation to benefit from the mistakes of their managers at the expense of innocent creditors of the corporation.
To the contrary, while perhaps not directly on point, the statutes and relevant case law suggest that when called upon to balance the interests of the shareholders of an insolvent corporation such as Delta against the interests of that corporation’s creditors, the interest of the latter are afforded preeminent protection. Thus, for example, under KRS 304.33^130, the claims of shareholders to the assets of the insolvent corporation are considered last, behind all other claimants, including unsecured creditors such as those who are here represented by the Liquidator. This priority scheme is consistent with that contained in the Federal Bankruptcy Act and other similar insolvency statutes. Given this pattern, the Court cannot accept the assertion that, in this instance, the shareholder, NDCC, is entitled to what amounts of money which would have been available to pay the debts of the insolvent but for estimates of liability which proved incorrect.
The Court is further persuaded by the rationale employed in the cases cited by the Liquidator. These eases make clear that a shareholder who receives part of a corporation’s assets through an improper dividend has no right to it as against creditors of the corporation. Moreover, no wrong is done to the shareholder to require it to repay these monies where as here, they are required to pay the debts of its insolvent subsidiary.
The Court is not persuaded by this argument. The applicable statutes afford the directors of an insurance company ample protection in declaring a dividend provided they act reasonably in so doing. This decision requires nothing more than that the shareholder of an insolvent insurer return monies to the company which it would not have been entitled to if the true financial status of the company had been known when the purported dividends were paid.
Slip op. at 4-5 (citations omitted).
For the foregoing reasons, I dissent.
FUQUA, J., joins.