## Facts

- Libbie Rehabilitation Center, Inc. was a Virginia close corporation formed to develop and operate nursing homes.
- A controlling group of directors/officers held, directly or indirectly, a majority of Libbie’s outstanding shares; minority shareholders held a substantial minority position.
- Minority shareholders alleged the controlling directors:
  - lacked the ability and commitment to manage nursing-home operations,
  - devoted only part-time effort while pursuing other businesses, and
  - paid themselves excessive compensation and otherwise misapplied corporate funds.
- The minority shareholders filed an equity action seeking a receiver, restoration of allegedly misapplied corporate funds, and judicial liquidation under former Va. Code § 13.1-94.
- After hearing evidence, the chancellor found the majority’s conduct “oppressive” to the minority and ordered dissolution and liquidation of the corporation, but did not order the directors to restore assets to the corporation.
- The corporation and the controlling directors appealed the liquidation decree.

## Issues

1. Whether the evidence established statutory grounds under former Va. Code § 13.1-94 for judicial liquidation based on “illegal, oppressive or fraudulent” acts or misapplication/waste of corporate assets.
2. Whether the chancellor abused equitable discretion by ordering dissolution and liquidation as the remedy on the record presented.

## Decision

- The Supreme Court of Virginia reversed the decree ordering dissolution and liquidation and remanded.
- The Court held the record did not justify the extraordinary remedy of liquidation under former Va. Code § 13.1-94.
- The Court concluded the chancellor misapplied the statutory standard by ordering liquidation without sufficiently compelling proof of conduct warranting that remedy.

## Legal Principles

- Judicial dissolution and liquidation under former Va. Code § 13.1-94 is an exceptional remedy that should be used sparingly.
- A finding labeled “oppressive” is not sufficient by itself; the conduct must meet the statute’s threshold and be serious enough to warrant terminating a functioning enterprise.
- Allegations of excessive compensation or mismanagement do not automatically require liquidation; courts must assess whether proven misapplication or waste warrants dissolution rather than narrower equitable relief.
- A chancellor’s discretion to order liquidation is constrained by the statutory predicates and is subject to appellate review for misuse when liquidation is ordered without clear, compelling support in the evidence.

## Conclusion

The Virginia Supreme Court reversed the liquidation of a close corporation because the evidence did not clearly establish the statutory grounds required for that drastic remedy, signaling that dissolution is a last resort when less severe remedies can address alleged majority misconduct.


Giannotti v. Hamway, 387 S.E.2d 725 (Va. 1990)