Q: I was a shareholder of a now-dissolved New Hampshire corporation. The company had outstanding promissory notes that were not settled at the time of dissolution. Years later, a debtor defaulted on one of these notes. As a former shareholder, am I still able to collect on this debt?
A: Yes, you may pursue the debt, subject to the statute of limitations. In New Hampshire, corporate assets, such as promissory notes that are not liquidated or assigned during the dissolution process, do not simply vanish. Instead, they automatically pass to former shareholders. This principle was established in Jenot v. White Mountain Acceptance Corp., 124 N.H. 701, 707 (1984), where the Court ruled that rights under mortgages or promissory notes that a corporation failed to exercise prior to dissolution “automatically descend[ed] to the former shareholders.” As a former shareholder, you retain the right to individually enforce outstanding promissory notes, within the bounds of the applicable statute of limitations.
The statute of limitations varies depending on the nature of notes. For notes that specify a due date, you must initiate legal action within six (6) years from the due date. If the note is accelerated, the six-year period starts from the accelerated date. For notes payable upon demand, where payment is expected only after the lender requests it, you must initiate legal action within six (6) years from the date of the demand. However, if no demand has been made and there has been no payment of principal or interest for a continuous period of ten (10) years, your right to collect is barred. When a promissory note is secured by a mortgage on real estate, the statute of limitations for enforcement extends to twenty (20) years.
What are your next steps? It is important to determine when the note became due, whether a demand was made, and whether the debt involves a mortgage or other secured interest. With these factors in mind, you should carefully review the terms of the note to ascertain when the statute of limitations starts running to ensure that your enforcement action is timely.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to knowthelaw@mclane.com. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.