Yes, in a Chapter 11, the stock would be worth nothing (so the damages on
the buyback agreement is probably nothing or is an unsecured claim equal to
the proported value of the company beofre filing the bk) but who will own
the reorganized debtor? To the extent new value is provided by the active
shareholder for his 50%, the passive shareholder has the same right to
provide new value for his 50%. So assuming the passive shareholder retains
its 50%. What happens then?
My concern, and the thing that popped out at me is that Chapter 11 is being
considered, in what appears to be, solely to avoid paying a shareholder 50%
of what he bargained for.
If that is the case, I am pretty sure the passive 50% shareholder can sue
the active shareholder for breaching his duty to the (minority?)
shareholder. I also think that the costs of the Chapter 11 can be sued for
by either creditors or the passive shareholder through a derivative suit.
If I was the passive shareholder's counsel, I would push for the
appointment of a trustee. If a trustee is appointed, all attorney client
privileged communication between this active shareholder and counsel for
the bk and the counsel for the corporation is out the window.
I also think it's a crummy thing to do to someone who just died but
probably helped get the company to where it got to.
Sincerely,
Michael Avanesian
On Thu, Feb 14, 2013 at 9:12 AM, Jeffrey S. Shinbrot wrote:
> **
>
>
> Michael, doesnt equity almost always get hosed in favor of the trades
> (and higher priority claims)?****
>
> ** **
>
> *From:*
cdcbaa@yahoogroups.com [mailto:
cdcbaa@yahoogroups.com] *On Behalf
> Of *Michael Avanesian
> *Sent:* Wednesday, February 13, 2013 11:38 PM
> *To:*
cdcbaa@yahoogroups.com
> *Subject:* Re: [cdcbaa] buy sell agreement in Ch 11****
>
> ** **
>
>
>
> I have a few quick comments. ****
>
> ** **
>
> First, the corp has a buyout agreement? Or is that an agreement between
> shareholders? I don't see why a corporation is liable when the other
> shareholders don't buy someone out? Or is it an agreement where the
> corporation has to buy back the shares?****
>
> ** **
>
> Second issue is that the old equity is extinguished in a bankruptcy and
> new shares are usually issued. In an 11, what is this new equity worth?
> Depending on the circumstances, probably nothing. ****
>
> ** **
>
> What about active partners fiduciary duty? How is he protecting himself
> from a lawsuit? His duty is (usually) to maximize profits for shareholders.
> A bk to screw over a shareholder sounds baaaad!****
>
> ** **
>
> Your duty is to the corporation, right?****
>
> ** **
>
> That's all I got in the limited time I took to consider these options.
>
> On Wednesday, February 13, 2013, Jeffrey S. Shinbrot wrote:****
>
> ****
>
> Wow, great question, an executory contract is one for which performance
> remains due to some extent on both sides so, assuming death is really
> final it would seem to depend of what, if anything, else is due to be
> performed under your contract.****
>
> ****
>
> *From:*
cdcbaa@yahoogroups.com [mailto:
cdcbaa@yahoogroups.com] *On Behalf
> Of *Margaret Norman, ESQ
> *Sent:* Wednesday, February 13, 2013 1:40 PM
> *To:*
cdcbaa@yahoogroups.com
> *Subject:* [cdcbaa] buy sell agreement in Ch 11****
>
> ****
>
>
>
> ****
>
> Closely held Corporation considers Ch 11 because of falling profits..
> Partner holding half of the shares dies. There is a buyout provision in
> the event of death. It doesnt mention bankruptcy. Active partner is
> refusing to pay any part of the buyout and claims that it is a contract
> which can be terminated in the Ch 11. I have researched and see that a buy
> sell agreement is mentioned among the lists of executory contracts which
> can be terminated. After check of the cases, it looks like that refers to a
> contract to buy back employee stock. I realize that if the Estate sues the
> corporation before BK, that would be a judgment which would be discharged.
> The question is, can the Buy Back Agreement caused by death be a rejected
> contract? ****
>
> Margaret Norman, Attny****
>
> 111 N. Sepulveda Blvd. #355****
>
> Manhattan Beach, Ca. 90266****
>
> 310-376-7873****
>
> Fax 310-798-0846****
>
> ****
>
> ****
>
>
>
> ****
>
>
>
> -- ****
>
>
> Sincerely,****
>
> Michael Avanesian****
>
> Attorney and Counselor at Law****
>
> 818-817-1725****
>
>
>
>
>
> ****
>
> ****
>
>
>
Yes, in a Chapter11, the stock would be worth nothing (so the damages on the buyback agreement is probably nothing or is an unsecured claim equal to the proported value of the company beofre filing the bk) but who will own the reorganized debtor? To the extent new value is provided by the active shareholder for his 50%, the passive shareholder has the same right to provide new value for his 50%. So assuming the passive shareholder retains its 50%. What happens then?
My concern, and the thing that popped out at me is that Chapter 11 is being considered, in what appears to be, solely to avoid paying a shareholder 50% of what he bargained for.
If that is the case, I am pretty sure the passive 50% shareholder can sue the active shareholder for breaching his duty to the (minority?) shareholder. I also think that the costs of the Chapter 11 can be sued for by either creditors or the passive shareholder through a derivative suit.
If I was the passive shareholder's counsel, I would push for the appointment of a trustee. If a trustee is appointed, all attorney client privileged communication between this active shareholder and counsel for the bk and the counsel for the corporation is out the window.
I also think it's a crummy thing to do to someone who just died but probably helped get the company to where it got to. Sincerely, Michael Avanesian
Jeffrey S. Shinbrot <
jeffrey@shinbrotfirm.com> wrote:
Michael, doesnt equity almost always get hosed in favor of the trades (and higher priority claims)?
The post was migrated from Yahoo.