Did everyone enjoy their 3 day weekend? Hopefully some of you were able to get out there and participate in the Community Service Day! Berkeley College dedicated June 11, 2010 as Community Service Day. It served as an opportunity for associates to serve communities and make a positive impact in the lives of others by committing their time and energy to local service organizations in New York and New Jersey. I think this was such a great idea and really shows how much we care. Thumbs up to Berkeley for doing a great thing!!!
I have been getting myself together to finish off some last minute assignments that I need to submit. I am also working on finishing up my paper for my Business Law class. I ended up going back online to the Berkeley Library and using the Business Module in ProQuest to find a better article. The original article I had was not too much in depth and it was hard to really understand what the controversial issue was in it. I came across this new article, which was much longer and had a lot more detail. Here is some information about it from my paper, it's a little lengthy but without these details you would be lost:
Schlotzsky’s Inc. is a national sandwich chain located in Austin, Texas who filed for Chapter 11 bankruptcy back in August 2004. The main reason for this particular filing was to save the company by being issued loans which would help to keep the company functioning. The hope in taking out loans was to help rid of any debts that may lead them into bankruptcy. The Wooley brothers, who were the officers and directors at Schlotzsky’s Inc, loaned the debtors this money in order to “stave off bankruptcy.” The question then arose as to whether or not the conduct of the Wooley brothers was harmful to the overall attempt at saving the national sandwich chain from suffering. The Wooley brothers continued to support Schlotzsky’s until they were able to obtain permanent financing and would no longer require their relief, which was referred to as a “bridge” loan at the time.
“The Wooley’s provided the November 2003 loan in exchange for a note and security interest in the assets of Schlotzsky’s Franchisor LLC, a solvent subsidiary of Schlotzsky’s Inc., and the release of certain personal guaranties the Wooley’s had given to support a loan and a real estate lease to the company by third parties.”
With this “bridge” plan in favor, the Wooley brothers needed to work with the International Bank of Commerce (IBC) to finalize the plans and so that Wooley’s would serve as the primary obligor. Then the proceeds of the loans would be passed on to Schlotzsky’s at the same interest rate as the loan made to the Wooley’s in return for the note and security interest in the assets of the Franchisor. (Tenzer)
While the loans were looking promising to help relieve Schlotzsky’s, it took a turn for the worse and the financial condition of the company crumbled. It turns out that the Wooley brothers were removed as the officers of the company and also resigned from the board of directors. Schlotzsky’s then had no option but to file for Chapter 11 which was heard by The Fifth Circuit. At this point, I felt that the Wooley brothers were trying to take advantage of Schlotzsky’s Inc., which is what the article stated as well. There was a possibility that this could have been a fraudulent activity, but the bankruptcy court found it not to be. The bankruptcy court then engaged in the idea that Wooley’s actions were inequitable.
“The bankruptcy court concluded that the Wooley’s had engaged in inequitable conduct and breached their fiduciary duties to Schlotzsky’s, warranting equitable subordination of their claims despite the fact that the loans were supported by opinions of legal counsel, approved by the board of directors, including independent directors and publicly disclosed in sec filings.” (Tenzer)
Tenzer, Andrew. “On the Edge.” American Bankruptcy Institute Journal. Business Module,
ProQuest, Berkeley College Library, Woodland Park, NJ. 8 Jun 2010.
For the last part of my paper, I need to persuade my reader why I either agree or disagree with what has occurred and of course back it up. In my mind, it could go either way. I mean the Wooley brothers did a good thing by trying to save the company, but on the other hand, they resigned and kind of left the company hanging, which made them have to file for the bankruptcy. It makes me question as to whether or not they had other proposals up their sleeves that may have not benefited them as much as this one had, considering the fact they resigned. I am not sure just yet. I have a few more days to really pick this apart and then argue whatever side I choose to argue for. Once I decide, I will be sure to share.
I am glad I went back in though and found another article. I had a lot of choices in front of me, and this one was one of the ones that really had a lot of information to follow along with. Detail is always a good thing!
Based on the information I provided, what are some of your thoughts on this issue? I would like to hear some opinions!
Enjoy the rest of your week and don't worry, I'll be sure to check in!
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