With the increasing cost of capital, higher input costs, and an expected slowdown in general economic activity, business uncertainty is on the horizon. ESOP companies have unique considerations to manage amongst a broad group of stakeholders. At the center of this, ESOP company management and boards should be aware of how to best address performance shortfalls, understand shifting legal duties of boards of directors and further diverging obligations for the ESOP trustee, manage concerns from seller note holders and the impact of a recent ESOP transaction, and chart a path forward including, if necessary, securing additional outside financing, restructuring outstanding obligations, or proceeding with bankruptcy, in a manner that preserves maximum value for all constituencies. While ESOPs have unique advantages over non-ESOP enterprises, they also pose a few important considerations, particularly given the heightened legal requirements of ERISA. Thus, a thorough understanding of the legal and financial realities of difficult times will prepare leadership to successfully navigate challenges posed by business underperformance.
Learning Objectives:
Understand performance shortfalls, taking into account the unique considerations of ESOP ownership
Identify shifting legal obligations of companies and boards of directors when encountering financial difficulty
Recognize the impact of ESOP ownership when pursuing a financial restructuring, bankruptcy, or raising additional debt or equity capital
