6 ms·

That is not a good structure for the acquisition, especially if you are on the hook for the shell. Quite often you have all of the responsibility to deal with s

That is not a good structure for the acquisition, especially if you are on the hook for the shell. Quite often you have all of the responsibility to deal with shit hitting the fan but no resources or personnel to actually do it.

x0x0 8y ago
That is (obviously) the trick: the "acquirer" doesn't acquire the shell. And therefore is on the hook for nothing. Customers have contracts with a corporation with no assets and no employees.
- zaarn 8y ago
  That's a pretty shitty thing to do. I would call such behavior immoral even consider it's all about not honoring contracts with customers.
- raverbashing 8y ago
  I wonder if this flies with a judge. Otherwise it would be a good way of making debts disappear.
  - pmontra 8y ago
    Yeah, it could be borderline with fraud.
  - dvfjsdhgfv 8y ago
    In some parts of the world it's actually a very common scenario. You not only get rid of debts in this way, but also employees.
- jjeaff 8y ago
  It doesn't work that way. You can't just transfer assets into a shell and leave the liabilities. Any lawsuits would be able to go after the assets, even if they were in a separate shell companies.
  - PeterisP 8y ago
    You can't transfer assets into a shell, but you can buy certain assets you want (e.g. IP) for a reasonable price even if it is much less than the liabilities, and take over the employees (which aren't "owned" by the company and thus an asset), and leave the old company to bankruptcy. Also, it's quite plausible that Smyte had negative value before the acquisition - that it's going to be an "empty sack" not because valuable assets were transferred elsewhere (which can be reversed in courts) but because its debts already exceeded any value it had, that it was an empty sack in the first place and no debts can be paid in full in any case.
    - bencollier49 8y ago
      Two things: * If the assets were bought, they'd be the property of the original company, and the money would go to the company, which would therefore have money to be sued for. * If the directors took that money out of the company, full in the knowledge that they had legal liabilities as the result of terminating service, at least in the case the UK (and I can't speak for US law), they'd be guilty of a number of crimes, as they are responsible for acting in the best interests of the business.
      - PeterisP 8y ago
        What I mean by "its debts already exceeded any value it had" is that it's quite plausible that any money paid for the assets immediately goes to the company's current debtors (including some investors, if convertible debt was used instead of equity) to partially cover their existing debts (which would be a fully legal and correct action by the directors), and there's nothing left to be sued for future liabilities. There are startup acquisitions which result in lots of money being paid to investors, and there are acqui-hires which amount to a pre-bankruptcy firesale to get part of the money back, but resulting in unpaid debt and bankruptcy anyway. I don't know about Smyte's financials, but it may well be that their situation is like the latter case. I don't see any reason to suppose that there some big bag of money (even post-acquisition) that's somehow illegally taken out of the company. It may well also be that the money paid to the company itself for acquisition is insignificant, and the rest is in form of some "hiring bonus" to make the transfer of employees work, so not something that the debtors can claim.
jonathankoren 8y ago
This is a very common setup. It's called a reverse triangle merger. https://www.investopedia.com/terms/r/rtm.asp https://www.investopedia.com/terms/r/rtm.asp
- mirimir 8y ago
  Yes, I see: > Because the reverse triangular merger retains the seller entity and its business contracts, the reverse triangular merger is used more often than the triangular merger. I was going to say "I wish that I could do that!" But then realized that bankruptcy comes pretty close.
- s73v3r_ 8y ago
  But why would a judge not go, "No, Twitter, you clearly acquired the company. Just because you broke it into pieces, and then picked up all those pieces does not mean that you didn't acquire the company."

x0x0 8y ago

That is (obviously) the trick: the "acquirer" doesn't acquire the shell. And therefore is on the hook for nothing. Customers have contracts with a corporation with no assets and no employees.

zaarn 8y ago
That's a pretty shitty thing to do. I would call such behavior immoral even consider it's all about not honoring contracts with customers.
raverbashing 8y ago
I wonder if this flies with a judge. Otherwise it would be a good way of making debts disappear.
- pmontra 8y ago
  Yeah, it could be borderline with fraud.
- dvfjsdhgfv 8y ago
  In some parts of the world it's actually a very common scenario. You not only get rid of debts in this way, but also employees.
jjeaff 8y ago
It doesn't work that way. You can't just transfer assets into a shell and leave the liabilities. Any lawsuits would be able to go after the assets, even if they were in a separate shell companies.
- PeterisP 8y ago
  You can't transfer assets into a shell, but you can buy certain assets you want (e.g. IP) for a reasonable price even if it is much less than the liabilities, and take over the employees (which aren't "owned" by the company and thus an asset), and leave the old company to bankruptcy. Also, it's quite plausible that Smyte had negative value before the acquisition - that it's going to be an "empty sack" not because valuable assets were transferred elsewhere (which can be reversed in courts) but because its debts already exceeded any value it had, that it was an empty sack in the first place and no debts can be paid in full in any case.
  - bencollier49 8y ago
    Two things: * If the assets were bought, they'd be the property of the original company, and the money would go to the company, which would therefore have money to be sued for. * If the directors took that money out of the company, full in the knowledge that they had legal liabilities as the result of terminating service, at least in the case the UK (and I can't speak for US law), they'd be guilty of a number of crimes, as they are responsible for acting in the best interests of the business.
    - PeterisP 8y ago
      What I mean by "its debts already exceeded any value it had" is that it's quite plausible that any money paid for the assets immediately goes to the company's current debtors (including some investors, if convertible debt was used instead of equity) to partially cover their existing debts (which would be a fully legal and correct action by the directors), and there's nothing left to be sued for future liabilities. There are startup acquisitions which result in lots of money being paid to investors, and there are acqui-hires which amount to a pre-bankruptcy firesale to get part of the money back, but resulting in unpaid debt and bankruptcy anyway. I don't know about Smyte's financials, but it may well be that their situation is like the latter case. I don't see any reason to suppose that there some big bag of money (even post-acquisition) that's somehow illegally taken out of the company. It may well also be that the money paid to the company itself for acquisition is insignificant, and the rest is in form of some "hiring bonus" to make the transfer of employees work, so not something that the debtors can claim.

jonathankoren 8y ago

This is a very common setup. It's called a reverse triangle merger. https://www.investopedia.com/terms/r/rtm.asp https://www.investopedia.com/terms/r/rtm.asp

mirimir 8y ago
Yes, I see: > Because the reverse triangular merger retains the seller entity and its business contracts, the reverse triangular merger is used more often than the triangular merger. I was going to say "I wish that I could do that!" But then realized that bankruptcy comes pretty close.
s73v3r_ 8y ago
But why would a judge not go, "No, Twitter, you clearly acquired the company. Just because you broke it into pieces, and then picked up all those pieces does not mean that you didn't acquire the company."