How are Prohibited Transactions unwound?

[ERISA-Bubs]

Our client is engaging in a transaction wherein it will be acquiring a company and giving a chunk of money to the company's ESOP and the ESOP will distribute the money. I'm a bit concerned there is a prohibited transaction here. If it turns out there is, I've often heard the DOL say they will unwind the transaction.

How would that work here? The ESOP wouldn't have the money to be able to pay our client back. It seems unfair that our client would have to give the company back, but not get its' money back.

[MoJo]

I'm confused.... First, is this an asset purchase, or a stock purchase? If the latter, the ESOP is a seller of the stock in the company it holds - which would require an "exchange' of cash (to the ESOP) for the stock (to the purchaser). Simple enough. If it is an asset purchase, then the ESOP will continue to hold the stock of the selling company, but now the selling company will essentially only hold cash (received from the sale of its assets) and then as part of the "liquidation" of the selling company, it will distribute cash to its shareholders (including the ESOP - which will then distribute the cash to the participants in due course).

What is the "potential" PT you see?