A federal court has ruled that ESOP participants have to sit on their stock for at least three more years.
The decision, by the U.S. District Court for the Western District of Kentucky, backed an earlier decision by a bankruptcy court blocking the sale of Conco Inc. stock by participants of the ammunition container manufacturer. The participants had brought a class action suit against plan fiduciaries, alleging a fiduciary breach under ERISA for refusing to even consider acquisition offers ($2 million) from a competing firm (Delfasco, Inc.) at a time when Conco’s shares were valued at… nothing.
The bankruptcy court had previously determined that a purchase of the plan’s equity interest by a third party before completion of the repayment terms would result in a cessation of operations, and non-payment to creditors. Consequently, under the reorganization plan, participants would be unable to sell their interest in Conco’s stock until 2019.
The plaintiffs appealed that decision, arguing that the reorganization plan didn’t preclude that sale. However, the plan's language is consistent with the bankruptcy court’s interpretation precluding the sale, the district court said.
While the plan made clear that Conco was barred from repurchasing or contributing additional funds to the Employee Stock Ownership Plan (ESOP) for the equity interests before 2019, it made no specific reference to whether the equity interests were permitted to be sold or otherwise transferred to a party other than Conco before 2019. As a result, the district court held that the bankruptcy court didn’t abuse its discretion.
