Explore the complexities of collecting a $10 million promissory note from a guarantor in the aftermath of legal troubles. Gain insights from the Eli Global, LLC v. Cieutat case, highlighting the risks and impact on M&A deals.
M&A Stories
December 8, 2023
Navigating the sale of your business involves risks, especially when a substantial portion of the purchase price is secured through a promissory note, even with the assurance of a prominent founder from a major private equity firm.
In 2002, two individuals founded a company focused on healthcare for conditions like hemophilia, later expanding to cover a range of health issues. The majority owners, including the CEO, sold the business to a private equity firm in 2018. The deal involved a $12.2 million 4% promissory note guaranteed by the founder of the private equity firm.
After the initial payment in April 2018, subsequent payments ceased due to legal troubles involving the private equity firm’s founder, who was indicted for bribery. This triggered a series of civil lawsuits.
Legal Proceedings: The seller pursued a lawsuit in an Alabama state court against the founder, seeking the remaining $10 million. Despite the founder’s appeal to the Alabama Supreme Court, the decision favored the seller, affirming a $10 million judgment.
Impact: Originally expected in April 2023, the final note payment remains outstanding. Instead, the seller, embroiled in litigation for over three years, has incurred legal fees exceeding $200,000.
While the seller prudently secured the note with a personal guarantee from a reputable business figure, the financial downturn of the guarantor’s empire now jeopardizes the recovery of the remaining $10 million. This case underscores the importance of securing the purchase price in cash upfront before finalizing the business transfer.
Case Reference: Eli Global, LLC v. Cieutat, No. SC-2023-0058 Supreme Court of Alabama (Rel: December 1, 2023).
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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