Is a retiring owner(seller) liable for debts of the ESOP to which she

[Guest William Hiscox]

Is a retiring owner liable for the debts of an ESOP to which she has sold her stock?

I am investigating an ESOP Leveraged Buyout for the company I work for. Another executive told me a horror story about a company whose owner sold the company to an ESOP. Several years later the company went into bankruptcy. The bankruptcy court ruled that the seller was liable for the debt, and that his assets could be garnished to satisfy creditors. Is there anything to this? It sounds counter-intuitive to me, but I am not familiar with ERISA, etc.

[RLL]

Sounds like the seller may have agreed to guarantee the company debt incurred to finance the ESOP buyout. Such a guarantee is not uncommon in the case of ESOP buyouts in closely-held companies. If financing can be arranged without a seller guarantee, the seller would not be liable for the ESOP debt in the case of bankruptcy (unless the court were to find that the buyout constituted a "fraudulent conveyance").