Morning trouble

Mon 03 February 2014
In the finance industry , we are often subject to money manipulation and actions mixing politics, treason and money exchange.
Here is one of the latest stories I heard about. And opened questions about it.

Our hero, that we will call John for the rest of this article, has entered a company “SuperCo” in the 80’s. The company grows, he took responsibilities, then bought it with some friend, creating with some associate whet we call in french namings SARL (see wikipedia definition ). This means that all the associates possess a part of the company, but any parts sold to a new investor must have the validation of the majority of the associates.

Beginning 2000, as the company was still growing, a new associate has been able to join. He also acts as jurist in the company. Let’s call him Jack. During all these times Jack is making arrangement that seems good for the company to John, and so gained his trust.

2010 : a national company wish to buy the SARL to group several similar company into a corporation . After a lot of negociation, John being not sure about it, Jack being against at first, the selling is decided. That is when it become interresting.
As the jurist of the company, Jack is taking care, in relation with the future corporation, of the selling arrangements and conditions. Conditions are pretty classical : it goes through a public selling of the shares of each associates, and included a rule to limit competition : 1
2014 : on the date of the selling, Jack uses a right he has as associate : the fact of being able to buy first the shares in case of sell. He buy all shares, getting rid of all other associate and not grouping into the corporation.
This is completely legal 2 , but John is devastated : Indeed, he did not want to sell all to Jack. Selling to the national company would enable him to continue his job in his area, just receiving a salary instead of being an associate. Here, he is not owning the company anymore and Jack throw him out (literally : he changed locks). John is having a lot of contacts in this area, being very well known by the clients since the 80’s, but as there is the competition limiting rule, he cannot work in the same area and same work domain in the 3 years to come.
Some questions I am asking myself on the subject :
LEGALLY, for John :
  • Can he do something about the fact that the jurist probably used his knowledge and advantageous position to give wrong advice for the contract realization?
  • Can he discuss in front of a judge the competition limit rule? It can often be done as french policy is really strict on these rules 3
  • Can he do something about being thrown out in not even a day, letting no time to make departure arrangement (he is not an employee therefore have no warning period).
  • Can John use his numerous contacts there to rebuild a company, if he is not officially at hit’s head (that would be the national company) or working for it in the the area?

FINANCIALLY, for Jack :

  • with this operation he looses associates being at key roles, plus a large number of employees and clients not being linked to the company itself, but to John’s reputation. That includes even some member of John’s family being employed.
  • buying the lot took a lot of money. and except if Jack lied about it, he does not have the means. that means he needed to borrow a lot of money for this investment.
  • the national company, that have some share (minor one), but a strong influence in both the area and the company, will probably be very upset of that situation. Moreover, they would need to be in this area, so probably will help a competitive company or create one, which would be worse.
  • instability will lead to lost of trust, and renegotiation of some contracts, not for the advantage of SuperCo.
  • company was in the best moment for it’s selling, according to multiple financial specialist

  ⇒   question is : what is the reason for Jack to do so? Could it be pushed by a competitive company?

Well, that was my morning trouble

Category: Finance Tagged: Business Jurist SARL Société à responsabilité limitée Finance reflections

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