This is the third in a series of articles discussing our real world observations having represented numerous individuals and entities in corporate and partnership freeze out and squeeze out situations.
In our previous articles we discussed five potential surprises facing a stockholder or a partner facing a squeeze out or partner freeze out as well as legitimate business decisions that are characterized by the people adversely affected (the victims of a squeeze out or freeze out) as minority partner and shareholder oppression.
Today we take a look at the end game, how these freeze outs ultimately end once all the lawyering, screaming, posturing and gamesmanship is over.
In the vast majority of situations, the moment a freeze or squeeze out of a shareholder or partner begins, it is destined that ultimately one or more shareholders or partners are buyers and the individual being squeezed is the seller. That is, most squeeze out situations among partners or shareholders ultimately resolve through a negotiated buyout. There are always exceptions. The faster the parties (mostly the person being squeezed) recognize this, the faster it can come to a conclusion, the faster the lawyer bills can stop and the faster everyone can go on with their lives.
The challenge is to convince the ultimate buyer they are going to be a buyer and convince the ultimate seller they are going to be a seller. The former is traditionally much easier to convince than the latter.
In our practice, more often than not, we see the ultimate resolution of someone buying and someone selling taking one of three roads to the end. The first way to resolution is the parties come to the realization that one is going to buy and one is going to sell; a price is negotiated and the matter is resolved at minimum stress, in the shortest amount of time and at a cost much lower than alternative resolutions.
If the first way to resolution is impractical, the next way to resolution after a certain amount of letter writing and trying to “work it out” one of the parties files litigation. After the parties have gone through months or years of producing their own or reading someone else’s documents in the discovery process and months or years of paying lawyers the parties come to a settlement ultimately following the course of the first method, the negotiated buy out.
The third method of resolution is actually to go through a trial where ultimately one of the parties pays the other for damages of some sort. If the trial is based upon a board of directors deadlock or stockholders deadlock, then the Judge can enforce one of several options under the Illinois Business Corporation Act which include dissolution of the business or ordering one party to buy out the other at a price set by the Judge.
Somewhere among these resolution options either early in the process or later after litigation is under way, is the possibility of both sides agreeing to dissolve the business and going their separate ways.
To summarize, although each situation is of course unique and there will always be exceptions, we have seen the end game of shareholder and partner freeze outs and squeeze outs, whether by amicable agreement early on or after months and years of substantial litigation and the accompanying legal fees, the situation resolves in a negotiated buyout.
Left for future installments of this series is once the parties agree to buy and sell then how do the parties arrive at a mutually acceptable value?
For more information on shareholder and partner disputes, their resolution, or other corporate law concerns, contact Horowitz & Weinstein.