As a reader of legal opinions, your author sometimes gets the sense that an appellate court, faced with a difficult issue, simply avoids the problem by making alternative findings that moot the choice. This aftertaste is brought to your author by HCI Investors, LLC v. Fox, 2013 WL 5525841 (Mo. App. W.D. 2013).
Evidently Hillcrest Bank, owned through a holding company, had substantial non-performing assets. To address the problem, those in charge came up with a plan under which non-performing assets would be sold to LLCS, to be owned by holding company shareholders who elected to participate. Whether membership had its “privileges” is another question–LLC members were subject to capital calls. The incentive to participate: Participating bank holding company shareholders who participated could obtain, for free, additional shares of the holding company in the amount equal to 25% of the non-participating shareholders’ interests. Oh, so here we have the stick.
Although in a Missouri court, the holding corporation had been incorporated in Kansas, which referenced Delaware corporate law in unsettled matters, says the court. So, the court is not looking to a Rodd Electrotype close corporation approach.
It might be something of a tricky matter to determine whether this transaction is subject to entire fairness or the business judgment rule (more on that below). But, not to worry, the court avoids the question, assuming the entire fairness standard applies, and then defers to the trial court’s determination that entire fairness has been met.
More after the break …