Can I pay myself a salary from a dissolved company before creditors?

Full question:

Problem Data: I worked for a company in the state of Indiana from 1992 to 12-31-2004. The company went out of business on 12-31-2004. The company did not file bankruptcy. It just closed down. The company has been in litigation from 1-1-2005 to 6-10-2011.The company was not operational from 1-1-2005 to 6-10-11. I am the only remaining employee, officer (CEO) and voting director of the company. I worked the ligation from 1-1-2005 until it was settled on 6-10-11. The company presently owes only 3 secured Note Holders, including myself. The Note Holders have perfected a UCC-1 lien against the company for the amounts of the notes. I want to be paid a salary (wages or fee) for the work I did on the litigation for the last 7 years. I have about 2,500 hours in the litigation and want to pay myself $10 an hour for this work. I had and still have an employment contract with the company to pay me $20,000 a month.Question: Can I paid myself a reasonable salary ($25,000) for the work I did on the litigation before paying the Note Holders or would the perfected lien position of the Note Holders dictate that the Note Holders have the right to be paid first - before any salary could be paid to me? If the salary could be paid first - do I have the authority to pay myself this salary with the positions I hold with the company? Please answer my question as directly as possible - thanks

• Category: Corporations
• Subcategory: Corporate Dissolution
• Date: 04/07/2025
• State: Indiana

Answer:

The answer will depend on the specific facts and the governing documents of the company. Generally, a corporation can pay reasonable expenses related to winding down its operations before paying other creditors. For example, corporate bylaws may outline the order of payment during dissolution.

According to Indiana law, when a corporation dissolves, it must pay off all its creditors and outstanding debts before distributing any remaining assets to shareholders. If cash flow is limited, the company may need to liquidate assets to ensure all creditors are paid (IC 23-1-45-5).

As the sole remaining employee, officer, and director, you may have the authority to pay yourself for reasonable work done during the litigation. However, this must be balanced against the rights of the secured Note Holders, who have perfected UCC-1 liens against the company. The Note Holders typically have priority over other claims, including your salary, unless your employment contract or the company's bylaws provide otherwise.

In summary, while you may be able to pay yourself a reasonable salary for your work, the perfected lien position of the Note Holders generally means they should be paid first. It’s essential to review the company’s governing documents and consult with a legal professional to ensure compliance with all applicable laws and obligations.