4 ms·

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 mone

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.
- bencollier49 8y ago
  Obviously this is massively speculative at this point in the conversation, largely a thought experiment, but -- Any side payment to the directors and staff outside of the acquisition - such as a "hiring bonus" as you suggest, which lead to the sale of assets at a lower price than would otherwise be the case - I'm pretty certain (again, in UK law, and I'm certainly not a lawyer), that this would be seen by the courts as a bribe, ie. money paid to perform their duty to the company improperly. See item 1.2 from the Bribery Act 2010: https://www.legislation.gov.uk/ukpga/2010/23/crossheading/general-bribery-offences https://www.legislation.gov.uk/ukpga/2010/23/crossheading/ge... Obviously not exactly relevant in this case, but I'm guessing there's a US analogue.
  - x0x0 8y ago
    it's totally kosher in the US. In my failing startup that was acquired, all eng got a carve out. It was basically a bonus to get us to remain employees after it became obvious the company was failing and was going to be sold. I'd imagine the legality goes like this: without that bonus, I certainly would have left. And there would have been nothing to be sold. So it was long-term better for investors.
    - jjeaff 8y ago
      It's only legal because there is a legitimate reason to pay it. The board members in charge have a fiduciary duty to the shareholders. So you will see payouts and bonuses to executives to get them to stay with the sinking ship in hopes of eeking out more money before the collapse, but if you were to just pay a bonus to an executive on their way out, you would have a very hard time justifying that and could be sued for breach of your fiduciary duty.

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.

bencollier49 8y ago
Obviously this is massively speculative at this point in the conversation, largely a thought experiment, but -- Any side payment to the directors and staff outside of the acquisition - such as a "hiring bonus" as you suggest, which lead to the sale of assets at a lower price than would otherwise be the case - I'm pretty certain (again, in UK law, and I'm certainly not a lawyer), that this would be seen by the courts as a bribe, ie. money paid to perform their duty to the company improperly. See item 1.2 from the Bribery Act 2010: https://www.legislation.gov.uk/ukpga/2010/23/crossheading/general-bribery-offences https://www.legislation.gov.uk/ukpga/2010/23/crossheading/ge... Obviously not exactly relevant in this case, but I'm guessing there's a US analogue.
- x0x0 8y ago
  it's totally kosher in the US. In my failing startup that was acquired, all eng got a carve out. It was basically a bonus to get us to remain employees after it became obvious the company was failing and was going to be sold. I'd imagine the legality goes like this: without that bonus, I certainly would have left. And there would have been nothing to be sold. So it was long-term better for investors.
  - jjeaff 8y ago
    It's only legal because there is a legitimate reason to pay it. The board members in charge have a fiduciary duty to the shareholders. So you will see payouts and bonuses to executives to get them to stay with the sinking ship in hopes of eeking out more money before the collapse, but if you were to just pay a bonus to an executive on their way out, you would have a very hard time justifying that and could be sued for breach of your fiduciary duty.