Liability for Wrongful Distributions Sample Clauses

The "Liability for Wrongful Distributions" clause defines the responsibility of company directors or officers if they authorize distributions to shareholders that violate legal or contractual restrictions, such as when the company lacks sufficient assets to cover its debts. In practice, this clause typically holds those individuals personally liable for the amount improperly distributed, and may require them to reimburse the company or creditors if losses result. Its core function is to deter improper payouts and protect the interests of creditors and the company by ensuring that distributions are only made when legally permissible.