Atlas Food Systems, Inc., based in California, was a food vending service that p
ID: 365823 • Letter: A
Question
Atlas Food Systems, Inc., based in California, was a food vending service that provided refreshments to factories and other businesses. Atlas was a closely held corporation. John Kikkas was a minority shareholder of Atlas. Alexi Kikkas was the majority shareholder. An agreement among the corporation and shareholders required the corporation to buy the shares of a shareholder at fair market value, but only upon the shareholder’s death. Throughout most of Atlas’s history, Alexi was the chairman of the board, which included John as a director. In 2005, while John was the president of the firm, the board and shareholders decided to convert Atlas to an S corporation. A few months later, however, Alexi, without calling a vote, decided that the firm would not convert. In 2006, a dispute arose over Atlas’s contract to buy certain property. John and others decided not to buy it. Without consulting anyone, Alexi elected to go through with the sale. Within a few days, under Alexi direction the Board by majority vote voted to terminate John’s role as president and employee. Two months later, Atlas offered to buy John’s interest in the firm for almost $2 million. John refused, believing that his interest was worth twice that. John filed a suit in state court against Atlas and Alexi, seeking, among other things, a dissolution of the corporation or a judicially required buyout of John’s shares. Might John succeed? Why? If John succeeded, at what price?
Explanation / Answer
Issue: John Kikkas was offered to sell his share in the closely held corporation for $2 million, which according to him was half of its actual worth. John has filed a lawsuit seeking dissolution of the corporation or judicial buyout of his shares.
Case/ Law applicable: Shareholder oppression claims: Laws protecting minority shareholders in Close Corporations in the United States.
Case results: In the light of the given scenario, Atlas has found engaged in conduct that was fraudulent, oppressive and unfairly prejudicial towards the minority shareholder i.e. John. Besides, Alexi was also found in engaged in fraud. Reasons supporting the same are given below:
These facts clearly depicts that the majority shareholders of the company were involved actions that unfairly prejudices the minority. Upon reviewing the case facts, the court would give its decision in favor of John. Along with other reliefs, a judicial buy-out of John’s shares will be ordered.
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