Rachelle H. Cohen authored a bulletin for members of the California Lawyers Association, published April 29, that discusses “What Happens to the Attorney-Client Privilege When a Corporation Dissolves?”
She pointed out that a California corporation enjoys the same attorney-client privilege protections as an individual client, but when a corporation dissolves there can be circumstances when it is not immediately clear what happens to that privilege.
Under the California Evidence Code, the attorney-client privilege protects confidential communications between lawyers and their clients. (Lawyers have a separate duty of confidentiality to their clients under the California Rules of Professional Conduct and the Business and Professions Code.)
When an attorney’s client is a corporation, the attorney-client privilege belongs to the entity itself, not to individual officers, directors, or employees, and normally is exercised by the corporation’s officers and directors.
While a corporation is in the process of dissolution, it continues to exist while it winds up its affairs. During this phase the corporation can still assert or waive privilege.
In a voluntary dissolution, once the winding-up process is complete the corporation can file a certificate of dissolution with the California Secretary of State. The corporation then ceases to have any rights, privileges, or powers.
If the corporation instead enters an involuntary dissolution, a court order causes the corporation to cease to exist, and directors and others are discharged from their duties and liabilities “except for the purposes of further winding up if needed.”
Once the corporation no longer is in existence, any remaining attorney-client privilege may be held by a successor, assign, trustee or other entity, such as an insurer who has been assigned claims against the corporation.
Judges have noted that presumably the privilege would no longer exist if there is no successor that can be the holder of the privilege after a corporation no longer exists, but this issue has not been definitively decided.
Thus, she points out, once the winding-up process of dissolution has been completed and the corporation is no longer in existence, it might become difficult to find a holder of the privilege.
Rachelle, Managing Partner of Valensi Rose, is a member of the Corporations Committee of the Business Law Section of the California Lawyers Association.
Her areas of practice include business and real estate transactions, estate planning, and legal ethics consulting. She serves as an outside “in-house” counsel to many of her clients, providing day-to-day guidance on legal challenges that arise in their businesses.
Rachelle speaks and writes frequently about business entities and transactions and legal ethics. In addition, she has taught a course at the USC Gould School of Law on contract drafting and strategy.