A recent decision by the Appellate Division of the
So What Did the Court Say?
Although plaintiff argued it should be entitled to partial payment out of available funds as of such specified date, and full payment once the remaining funds become available, the court disagreed. It said the language of "the all-or-nothing nature of the parties' agreement" was unambiguous; it explicitly stated that all shares must be redeemed "'for cash,' on a specific date, for a specific price, out of legally available funds," and "if the parties had intended to provide for partial or delayed payment, they would have done so."
Should You Worry About Companies Intentionally Rendering Funds Legally Unavailable?
The court said no. It reasoned that if such circumstances exist, there are readily available remedies if evidence is presented of bad faith or fraudulent actions, or that otherwise establishes that surplus is available and a company would not be rendered insolvent, including specific performance to have such company perform its redemption obligation, which evidence the court said was not presented by plaintiff in this case.
Key Takeaways
-
Including "all, but not less than all" phrasing can effectively undercut a redemption right in certain circumstances, so such language should be used carefully and intentionally.
- If you want a right to a partial redemption out of then legally available funds, be clear about it.
- Specify if you want the redemption obligation to survive beyond the designated redemption date, in the event legally available funds are not available at such time.
Generally, this is a good reminder that language choices matter and courts are hesitant to add terms to contracts after the fact, particularly between sophisticated business entities that had the opportunity during negotiations to do so themselves. Even seemingly straightforward market provisions require careful, intentional drafting. It is important to engage counsel aware of such pitfalls and mindful of the changing landscape of judicial interpretations of such matters, as well as your specific motivations and needs.
What to Do If You Are Affected by This Decision
Given this decision by the Appellate Division of the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Suite 500
Santa Monica
CA 90401
Tel: 212813 8800
E-mail: rmertz@goodwinlaw.com
URL: www.goodwinlaw.com
© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source