A BUSINESS LAW CASE STUDY
A client worked long and hard to build an agency into a successful business that provided for him and his family. He was approached by a much larger agency that wanted to buy him out. One of our transactional attorneys helped negotiate the terms of the transaction and drafted the necessary paperwork.
The deal terms included a cash payment made at closing with the substantial balance due payable by way of monthly payments due under the promissory note over several years. Since the buying entity was a corporation, we insisted on having the personal guarantees of the shareholders. The seller agreed that except for working for the buyer, he would not be active in the business so as not to compete with the buyer. One of the assets being sold was the name of the business, which was also the name of the seller’s corporation. Following closing, the seller had to change the name of the corporation. In order to secure payment, there was security agreement which provided that if the buyer defaulted on payments, the seller would get back everything being sold. The buyer insisted in an indemnification agreement which provided for reimbursement if it was determined that either party materially misrepresented any important facts to the other.
The documentation that we negotiated and drafted included an asset purchase agreement, the promissory note, the security agreement, the covenant not to compete, a bill of sale for the tangible assets, and an indemnification agreement. After closing, we filed a UCC-1 financing statement with the Department of State in Albany to perfect our client’s security interest. We changed the name of the corporation. We also arranged for the buyer to pay sales tax on those assets that were taxable on the sale.
Unfortunately, things didn’t turn out so well. After several months, the buyer stopped making the monthly payments under the promissory note. They had their excuses, which we thought were weak and groundless. Attempts to settle did not bring the desired results so one of our litigators brought litigation in the Supreme Court for breach of the promissory note. The buyer asserted its defenses but the judge agreed with us and we won.
Winning a lawsuit is only half the battle. Judgment debtors often refuse to pay and you have to work to collect on the judgment. The attorney for the buyer contacted us and offered us half of our judgment amount in the hopes of settling quickly. We rejected that proposal. The buyer also threatened, and ultimately did, file an appeal. An appeal would likely take as long as two years and cost many thousands of dollars. Our client had to weigh that cost and delay against the benefit of an immediate settlement. Our client has a strong stomach and said no several times.
Even while considering settlement offers, we carried on our collection efforts. We learned that the buyer and its shareholders owned real estate in several counties so we filed the judgment in all of those counties. This would prevent the buyer and its shareholders from selling or refinancing their real estate in those counties until they satisfied our judgment. We began the process of garnishing their wages.
We also prepared information subpoenas which were served on the judgment debtors to ask questions about their assets. Once we received that information we could of had the sheriff seize assets. We could of also brought the judgment debtors in for depositions to ask questions about their assets.
As all this was happening, the buyer’s attorney continued to contact us with ever-increasing settlement offers. Eventually the number was large enough to satisfy our client and we agreed. He received a large bank check within five days and avoided having to finance and endure an appeal.
This is not intended to be legal advice. You should contact an attorney for advice regarding your specific situation.