Our client was a shareholder in her family's meat packing company. Her father started the company in the 1950s and it had been very successful. After working for the company as its bookkeeper for 30 years, our client had agreed to an early retirement and to sell her 20% share of the company to her nephews. Knowing they would need some time to come up with the cash to buy her out, the client agreed to be paid the appraised value of her stock at the end of a ten year period.
Shortly after making the agreement, the nephews asked the client to guarantee some of the company's business loans so that they could start expanding the business. Client foolishly agreed to guarantee the corporation's $3,000,000 debt, without any oversight of the company.
With the nephews in full operational control of company, they began using the company bank account as their own - taking lavish trips with their families, buying race cars, and renovating their homes. This left little money to buy out their aunt and the nephews defaulted on their agreement.
We filed suit against the company for breach of contract. After a forensic accounting firm totaled the nephews' fraud to many millions of dollars, we successfully negotiated a payoff and settlement of the client's shares.
In addition, through the use of shareholder requests for information, we were able to uncover that the nephews had improperly used corporate funds to acquire the other family members' shares. The result of this was that the repurchased stock was considered "par stock." In essence, that made our client the majority shareholder of the company and would have allowed her to take complete control of the company back from her nephews. We put this client back in the leveraged position she had started from but lost. And we saved her retirement.
Practice area(s): Corporate / Incorporation