## Facts

- Deerfield Lumber & Fuel Co., Inc. repurchased shares of its own stock from several shareholder defendants.
- The receiver of Deerfield and three corporate creditors alleged the repurchases occurred when Deerfield was insolvent and lacked earned surplus.
- Plaintiffs sought to recover from the shareholder-sellers the amounts Deerfield paid for the repurchased shares.
- The claims against shareholders were pleaded under a preexisting Illinois common-law creditor remedy that imposes liability based on depletion of assets available to creditors, without requiring proof of fraud or wrongdoing by the shareholders.
- Director defendants defaulted; default judgments were entered against them for amounts paid for the stock, and those judgments were not appealed.
- The trial court dismissed the counts against the shareholder defendants on the theory that § 42 of the Illinois Business Corporation Act provided the exclusive remedy and did not authorize direct actions against shareholders; the appellate court affirmed.

## Issues

1. Whether § 42 of the Illinois Business Corporation Act extinguished the common-law creditor action allowing direct recovery from shareholders who sell stock to an insolvent corporation (or one without surplus) in exchange for corporate funds.

## Decision

- The Supreme Court of Illinois reversed the appellate court and remanded.
- Section 42 did not repeal or supplant the preexisting common-law remedy against shareholder-sellers.
- Creditors, or a receiver acting for them, may maintain a direct action against shareholders who receive payment for stock repurchased by an insolvent corporation or one lacking lawful surplus.
- The statutory remedy imposing liability on directors for unlawful distributions operates alongside, not in place of, the common-law shareholder liability rule.

## Legal Principles

- A shareholder who sells stock to a corporation when the corporation is insolvent (or when the purchase is otherwise unlawful for lack of surplus) may be liable to injured creditors for the amount received, even absent fraud.
- Repeal of common law by implication is disfavored; a statute will not be read to abolish a settled common-law remedy absent clear legislative intent or unavoidable inconsistency.
- A statutory provision creating “additional” liabilities for directors does not, without express language, eliminate creditor remedies against other parties who received the corporate funds.
- Remedies addressing unlawful distributions can coexist: statutory claims against directors for authorizing the transaction and common-law restitutionary claims against shareholders who received payment.

## Conclusion

The court held that § 42 of the Illinois Business Corporation Act added a statutory remedy against directors but did not eliminate creditors’ longstanding common-law right to recover directly from shareholders who sold their shares to an insolvent corporation (or one lacking lawful surplus), and it sent the case back for further proceedings on the shareholder claims.


Reilly v. Segert, 31 Ill. 2d 297, 201 N.E.2d 444 (Ill. 1964)