“Updating or Following Buy-Sell Agreements” by John M. Carnahan
A recent decision of the Missouri Court of Appeals for the Eastern District, in Cannon v. Monroe, reaffirms the importance of reviewing and updating your Buy-Sell Agreements on a regular basis, and discussing it as part of your annual Shareholder and Board of Directors’ meetings each year.
The facts were fairly straight forward, Mr. Cannon and Mr. Monroe were 50/50 Shareholders in three Missouri Corporations. They had been co-owners for many years. One of the Corporations did have an ownership agreement. The companies had failed to have meetings to elect Officers or Directors for many years, and therefore since the last time they were able to get together and have elections, the same slates continued. Management of companies became deadlocked over time.
The businesses appeared to be successful. In 2004 Mr. Cannon filed a Petition under Sections 351.467 and 351.143 of the RSMo. He was seeking dissolution of the corporations, pursuant to the provisions of Missouri law and asking the Court to take jurisdiction and appoint a trustee or receiver to administer and wind up the affairs of the Corporation. The Trial Court appointed a St. Louis attorney as the Trustee, to serve the interests of the shareholders with the authority to run the business and sell the company as a going concern or to liquidate its assets. The Trustee determined that it was in the best interest of the Companies and the parties to have a private sale to conclude the litigation, by having one of the parties acquire the other’s interests in the firms. The Trustee accepted written bids from each party, and Mr. Cannon was the successful bidder for $1,755,000, of the interests of Mr. Monroe for all three Corporations. The Trial Court concluded that the remedy of the private sale was appropriate, even though one of the statutory provisions required dissolution. The Court concluded that the Statute required the Trustee, or receiver, to act to maximize shareholder value, which could be through dissolution or selling the company as a going concern, including sale to either one of the existing shareholders.
It is important to note, that the case started in 2004 and it was not resolved until May of 2009 with the decision of the Court of Appeals. The case had already been to the Missouri Supreme Court once, and therefore the decision of the Court of Appeals should be final.
This case serves as a good example, of how not to conduct shareholder relations, and the importance of discussing management, business plan, including Buy-Sell Agreements, and updating them on a regular basis.