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  •  DN - there is no way that a company can go under (0+ / 0-)

    and the private equity investors can walk away with their equity. The equity is the capital most at risk and if a company hits the skids that is what is lost first. The debt holds a more senior position and if the company is sold for less than what the private equity investors paid, the debt, and other liabilities, are paid first, the equity is paid last.

    While my answer may not be reasonable to you it is the current state of the law. Private owners of businesses don't need to do what is right for anyone except themselves (assuming they obey all laws) and their business decisions  aren't always going to be right.

    "let's talk about that"

    by VClib on Sun Jan 05, 2014 at 03:21:41 PM PST

    [ Parent ]

    •  There is ABSOLUTELY a way (0+ / 0-)

      They walk away with it by giving themselves bonuses after the deal has been completed.  It happened with Hostess where the ownership repeatedly awarded themselves huge bonuses and salaries as they were cutting employees pay, benefits and raiding their pension all prior to finally shuttering the doors.  Hell those assholes were giving themselves extra pay to fucking shut the doors on a company they drove into the ground and some asshole bankruptcy judge actually allowed it.  Those bonuses comes from somewhere.  By the time the company enters bankruptcy that money is long gone so what position the remaining equity has at that point is moot since it's been raided already.

      The answer I'm looking for is not 'it's the law and therefore we should accept this shit'.  I'm looking for the answer to what can and should be done about it to correct this behavior.  If that means changing the laws then which ones specifically.  If that means changing tax law then which tax laws and how changing them will affect or cut down on this behavior.  If that means enacting new laws, then what will those laws be.  Status quo is not a solution but the problem.  

      This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

      by DisNoir36 on Mon Jan 06, 2014 at 05:13:39 AM PST

      [ Parent ]

      •  The bonuses are paid to the executives (0+ / 0-)

        managing the company, not the investment partnerships. The ability to pay dividends is restricted by IRS and accounting rules, but to the extent they are paid those would go to the private equity investors and is a way that they can take some of their equity investment off the table. If that is done close to a bankruptcy filing there are clawback provisions in the bankruptcy code.

        I think this is one area where changing the laws are very difficult, with the exception that changing the carried interest rules have a lot of political support and would decrease private equity fund manager compensation. However, I don't think changing the carried interest rules would have any impact on the private equity business model or how private equity funds operate. The managers would just earn less after taxes. The challenge is that trying to change what private company owners can do to manage and leverage their business is difficult because the rules would apply to all private companies, not just those owned by private equity investors. When the government tries to make fundamental changes to how private companies can manage their own financial activities we lose support from the business sector, across the board, and politicians of both parties.  

        "let's talk about that"

        by VClib on Mon Jan 06, 2014 at 08:22:05 AM PST

        [ Parent ]

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