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Wieboldt Stores, Inc. v. Schottenstein
United States District Court for the Northern District of Illinois
94 B.R. 488 (1988)
Wieboldt Stores, Inc. (Wieboldt) (plaintiff) encountered increasing financial difficulties in the 1970s. Wieboldt’s controlling shareholders, officers, and directors (the insider shareholders) (defendants) formed WSI Acquisition Corporation (WSI) to execute a leveraged buyout of Wieboldt. WSI sold Wieboldt’s main property to pay off an existing loan obligation and pledged most of Wieboldt’s assets to secure additional loan financing for a tender offer. Each of the institutions that funded the tender offer—Household Commercial Financial Services, BA Mortgage and International Realty Corporation, and General Electric Credit Corporation (collectively, the lenders) (defendants)—knew of the others’ financial commitments. Wieboldt’s board of directors likewise had a full understanding of the insider shareholders’ plan. The tender offer was accepted by Wieboldt stockholders at $13.50 per share in 1985, at which point Wieboldt was already insolvent. Wieboldt filed for Chapter 11 bankruptcy protection not long after. Then, acting individually and on behalf of its unsecured creditors, Wieboldt brought an action in federal district court against 119 parties, including the insider shareholders, the lenders, and the holders of common stock who had tendered their shares in response to the WSI offer (the common stockholders) (defendants). Wieboldt sought to have the tender offer and leveraged buyout voided as a fraudulent conveyance under Illinois law and the federal Bankruptcy Code. This was followed by various motions to dismiss.
Rule of Law
Holding and Reasoning (Holderman, J.)
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