Plan termination wind-up activities post stock merger

[kmhaab]

I just need a reality check, as I'm getting push back from high-level executives on this...

Company A acquired Company B in a stock transaction.  Company B's ESOP was terminated by Company B just prior to the transaction, as required by the purchase agreement. Company A is now responsible for winding up the ESOP, right?  Because Company B no longer exists...

Company A executive keeps telling HR not to worry about the Company B ESOP because it was terminated before A bought B, but in a stock transaction that is irrelevant, correct?  

Someone please confirm...I want to make sure I'm not missing something...

Thank you!

[ESOP Guy]

I agree that merely being terminated is not enough to say no worries.  Someone has to guide the plan and trust to paying out everyone.  

I don't think Company A is responsible for the ESOP merely because company B doesn't exist.  

Even a terminated plan is supposed to have a sponsor until fully shut down. Someone is still the plan's trustee also.   If A owns the stock of B and B is the sponsor doesn't A have control of the sponsor? 

I think you are basically correct but for slightly different reasons. 

 

I am assuming the cash paid for B's stock is in the ESOP's trust and needs to be paid out.  I am shocked people aren't being hit up with requests of when do I get my money.  

 

Curious who does A's management think ought to be responsible for finishing the process of closing the trust and paying people out?

[kmhaab]

Thank you. I think we're saying the same thing. There is no B stock anymore.  The stock of B was exchanged for stock of A (and some cash). It's as if A swallowed B. ?  A is now the plan sponsor, as the successor to B. 

I think A's management believes the vendor will finish the process, but of course doesn't understand the administrative activities required and that someone must manage the vendor...

[ESOP Guy]

42 minutes ago, kmhaab said:

Thank you. I think we're saying the same thing. There is no B stock anymore.  The stock of B was exchanged for stock of A (and some cash). It's as if A swallowed B. ?  A is now the plan sponsor, as the successor to B. 

I think A's management believes the vendor will finish the process, but of course doesn't understand the administrative activities required and that someone must manage the vendor...

Someone has to pay the vendor!

[Luke Bailey]

Allocation of the burden and risk of terminations should have been included in the stock purchase agreement. If it was not, then default would be that would be obligation and risk of surviving company, A, but there might be other protective verbiage for A in the stock purchase agreement even if did not get a specific allocation of duty to terminate ESOP to B's shareholders.

[Cardscrazy]

To shut down the ESOP would have required an amendment to the plan and such amendment should discuss responsibilities of the parties.   So see if you can get a copy of that plan amendment.  

[kmhaab]

Thank you. The stock purchase agreement states that Company B will terminate the ESOP prior to the transaction, which technically they did. But there are still wind-up activities. And the termination amendment states that officer of Company B are empowered to take action to wind up the ESOP. 

But I keep getting hung up on the fact that Company B merged into Company A and no longer exists. Company A bought all of Company's B's stock.  My belief has been that in a stock purchase the Buyer "steps into the shoes" of the Seller and has all the Seller's obligations, liabilities, duties, etc. Is this not the case?  

 

[Luke Bailey]

1 hour ago, kmhaab said:

Thank you. The stock purchase agreement states that Company B will terminate the ESOP prior to the transaction, which technically they did. But there are still wind-up activities. And the termination amendment states that officer of Company B are empowered to take action to wind up the ESOP. 

But I keep getting hung up on the fact that Company B merged into Company A and no longer exists. Company A bought all of Company's B's stock.  My belief has been that in a stock purchase the Buyer "steps into the shoes" of the Seller and has all the Seller's obligations, liabilities, duties, etc. Is this not the case?  

 

kmhaab, without being able to review the documents (stock purchase agreement, resolutions, etc.), I can only guess, but my guess is that you are analyzing the situation correctly.