The late depression with its attendant bank failures and the consequent assessment of shareholders has resulted in bringing before the courts a question that has never been litigated until comparatively recent times. That is, can the shareholders of a holding company, whose assets consist of stock of the closed bank, be subjected to the statutory assessment when the corporation itself is unable to meet the assessment? The case of Nettles v. Rhett is the latest of this series, and is fairly typical of the issues involved. This case concerned a suit by the receiver of the Peoples State Bank of South Carolina against the stockholders of the Peoples Investment Company, whose assets consisted solely of 74,000 shares of the closed bank. This company had been chartered by the officers of the bank in 1929, while the bank was in a solvent condition, for the purpose of financing the expansion of the Peoples State Bank; it was thereafter used to control the bank, although ownership of bank stock by a corporation was forbidden under the constitution of South Carolina. The shareholders of the holding company claimed that since the holding company was formed in good faith for legitimate business reasons, and not for the purpose of evading liability, they should not be subject to an assessment. This contention was upheld by the federal district court. However, the circuit court of appeals concluded that, since ownership of bank stock by a corporation was ultra vires and the corporation consequently immune to assessment under South Carolina law, the shareholders could not evade their liability by transferring to an owner legally incapable of assuming the obligation. The court also asserted by way of dictum that it would have reached the same result even if the corporation could have legally owned the stock, on the principle that transfer of bank stock to an owner known to be financially unable to respond to an assessment leaves the transferor still liable. This result is in accord with all the other cases which have considered the question under various fact situations, and it is the purpose of this note to discuss the various theories on which liability has been predicated.
Edward J. Wendrow,
CORPORATIONS - LIABILITY OF STOCKHOLDERS OF BANK STOCK HOLDING COMPANY FOR STATUTORY ASSESSMENT ON BANK STOCK.,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol36/iss8/6