Litigation and the Distribution of Assets When a Company Is Winding Down

When a business comes to an end, whether by choice or by force, one of the most important and often contentious steps is deciding how to distribute the company’s assets. For business owners, partners, investors, and creditors, this process can be confusing, and when disagreements arise, litigation is often unavoidable.

If your company is winding down in Florida, here’s what you need to know about how assets are distributed and what happens when disputes escalate into legal battles.

What Does It Mean for a Company to “Wind Down”?

In legal terms, winding down refers to the process of closing out a business after it has decided to stop operating. This can happen because:

• The company has reached the end of its business purpose.
• The owners decide to dissolve the company voluntarily.
• Creditors or courts force a dissolution due to insolvency or disputes.

Winding down involves finalizing accounts, paying debts, and distributing what remains of the company’s property and profits. While it may sound straightforward, it often becomes complicated once multiple stakeholders are involved.

Who Gets Paid First When a Company Dissolves?

When a business winds down in Florida, there is a legal order of priority for how assets are distributed:

1. Creditors: Outstanding debts, loans, and vendor payments must be satisfied before anything is distributed to owners.
2. Employees: If wages or benefits are owed, they must be paid.
3. Shareholders or Members: Once debts and obligations are cleared, remaining assets are distributed according to the ownership agreement or Florida law.

Problems arise when owners dispute what debts are valid, when creditors push aggressively for repayment, or when there is no clear operating agreement spelling out how distributions should occur.

Common Legal Disputes in the Distribution of Assets

Litigation often comes into play when stakeholders cannot agree on who gets what. Some of the most common disputes include:

• Ownership Percentage Disputes: One partner claims they are entitled to more than another.
• Creditor Challenges: Creditors may argue for priority over certain assets, sometimes even alleging fraud.
• Breach of Fiduciary Duty: Owners can be accused of improperly diverting assets before dissolution.
• Lack of an Operating Agreement: Without clear instructions, the default state statutes apply, which may not reflect what the owners intended.

These disputes can escalate quickly and end up in court if not handled carefully.

Florida Law on Asset Distribution During Dissolution

In Florida, the process of winding down and distributing assets is governed by the Florida Business Corporation Act (for corporations) and the Florida Revised Limited Liability Company Act (for LLCs).

Key rules include:

• A dissolved company continues to exist only to wind up and liquidate its affairs, not to take on new business.
• Assets must be distributed in the proper legal order (first creditors, then owners).
• If disputes arise, courts can step in to oversee the process and ensure fairness.

This is why having legal counsel is critical when closing a business. A single misstep in distribution can lead to costly litigation.

How to Protect Yourself During the Wind-Down Process

If your business is heading toward dissolution, here are some steps to minimize the risk of disputes:

• Review Your Operating Agreement or Bylaws: Make sure you understand how distributions are supposed to work.
• Communicate with Co-Owners and Creditors: Transparency reduces suspicion and conflict.
• Document Every Step: Keep a clear record of what debts are paid, what assets remain, and how decisions are made.
• Consult a Business Litigation Attorney: If you anticipate disputes, an attorney can protect your rights and prepare for potential litigation.

When Litigation Becomes Necessary

Sometimes, no amount of planning or communication can avoid litigation. If co-owners, investors, or creditors cannot agree on the distribution of assets, courts may need to resolve the matter. Litigation may involve:

• Filing for judicial dissolution.
• Asking the court to appoint a receiver to manage the wind-down.
• Pursuing claims for fraud, mismanagement, or breach of fiduciary duty.

These proceedings are complex and high-stakes, especially when significant assets or real estate are involved.

Final Thoughts

Winding down a company is rarely simple. Between unpaid debts, creditor claims, and disputes among owners, the distribution of assets can easily lead to litigation. Having an experienced business litigation attorney on your side ensures that the process is handled properly and that your interests are protected.

If your business is in the process of winding down and you are facing disputes over assets, contact one of our experienced business litigation attorneys in Miami at 305-570-2208.

You can also reach our founding attorney, Eduardo A. Maura, at eduardo@ayalalawpa.com.

Schedule a confidential case evaluation online here.

[The opinions in this blog are not intended to be legal advice. You should consult with an attorney about the particulars of your case.]