Can the U.S. Punish BP’s Shareholders? Debate..

[Joanne98]

The United States Justice Department said on Wednesday that it was considering legal action to block British Petroleum from paying dividends to make sure the company covers all costs related to the oil spill in the Gulf of Mexico. Interior Secretary Ken Salazar has said BP would be asked to pay energy companies for losses if they had to lay off workers because of the moratorium on deepwater drilling.

BP, whose shares dropped 7 percent in London on Thursday, said it would decide next month whether keep a quarterly dividend of 14 cents a share for the second quarter, a payout of about $2.6 billion. Needless to say, investors in Britain were furious because BP dividends accounted for some 12 percent of all dividends handed out by British companies last year.

Should the U.S. stop BP from paying dividends to its shareholders? What would be the consequences of this action?


Lynn A. Stout, professor of corporate and securities law, U.C.L.A.
Jeffrey A. Miron, economist, Harvard University
Nils Pratley, financial editor of the Guardian
Steven Kaplan, professor of finance, University of Chicago
William K. Black, professor of economics and law
J.W. Verret, George Mason Law School
Tom Baker, University of Pennsylvania Law School

--------------------------------------------------------------------------------


The Justice Department Is Right

Lynn A. Stout is the Paul Hastings professor of corporate and securities law at U.C.L.A. and an expert on corporate governance.


Suppose you own shares in a company that causes a disaster. Perhaps your company blows up a village in India, or sells an arthritis drug that proves to cause heart attacks, or negligently causes the largest oil spill in the history of the United States. As a shareholder, you have limited liability and are not personally responsible for the damages. You do, however, have to worry about losing your investment. There is a chance, slim but not zero, the company will eventually have to pay out damages that exceed its net assets. What should you do?

As any corporate finance expert would tell you, you should immediately start draining any and all cash out of the firm into your own pockets. The best and quickest way to do this, of course, is to pay yourself a very large dividend.

This scenario explains why, on Wednesday, the U.S. Justice Department announced that it was “concerned” about BP’s plan to pay its shareholders approximately $10 billion in dividends. On first inspection, it might be tempting to dismiss the Justice Department’s protests as blown out of proportion. Surely BP has enough money to pay for the costs of the spill and a dividend, too. After all, BP is one of the largest public companies in the world.

Read more…
http://roomfordebate.blogs.nytimes.com/2010/06/10/can-the-u-s-punish-bps-shareholders/?ref=business

[Statistical]

1. Out dated article. The DOJ reported they are not going to use injunction to block dividend.

Shareholders will receive $0.83 on June 21st a total of $2.63 billion.

As far as requiring BP to pay laid off workers, Obama already back tracked on that one too. Says he lacks legal authority for that demand.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x8535853

[FBI_Un_Sub]

5. What if

an "Involuntary Petition" is filed against BP alleging an "Act of Bankruptcy"? That temporarily stops the dividends.

[Statistical]

6. Only a creditor can do that....

until BP is technically fined or sued for damages the federal govt, states, or damaged entities are not creditors.

My understanding is they have no standing.

Now If today the govt fined BP $10B for violation of clean water act and BP failed to pay and at same time issued a dividend then the US could force BP into bankruptcy via an involuntary petition.

[FBI_Un_Sub]

7. If a litiginous NY or LA lawyer looked for

an "Act of Bankruptcy" she could find one.

[Statistical]

8. Once again YOU MUST BE A CREDITOR to force a bankruptcy.

For example I own GM bonds. I feel GM actions are threatening my rights as creditor. I can *attempt* to force GM into bankruptcy.
You are a worker at GM you feel GM actions are reckless. You have no standing to force GM into bankruptcy.

Only the creditors can force an entity into bankruptcy. While BP likely will end up owing (i.e. in future) billions for the spill technically and as a matter of law it has no judgements against it at this time.

Thus it has no creditors which could force it into bankruptcy protection *yet*. Make sense?

[FBI_Un_Sub]

9. Bankruptcy

doesn't require a judgment. Just a failure or an inability to pay debts as they come due.

[Statistical]

10. Once again debts = creditor

Please read....

ONLY A CREDITOR CAN FORCE A BANKRUPTCY.

The US govt isn't as of yet a creditor thus they can't force BP into bankruptcy

Step 1) BP owes federal govt money
Step 2) BP does not pay federal govt
Step 3) Federal govt forces BP into bankruptcy.

You are trying to jump right to step 3. I am simply saying that before you go there BP has to actually owe someone* AND NOT PAY THEM.

* Obviously BP will owe many people billions in the future but from a legal standpoint until the debt exists those people are not creditors. Just because BP may be liable in the future is not sufficient.

[Scuba]

2. Simple...

...when a company turns a profit, the owners are entitiled to a dividend. Profit is defined by revenues minus expenses.

When a business has expenses that exceed revenues, there is no profit to share.

The expense of the Gulf disaster is on BP's shoulders, and should be on their ledgers. It's hard for me to imagine that the cost (expense) of cleaning up the Gulf and compensating the victims is less than the amount they are distributing as a dividend, reportedly $2.x Billion. I'm no expert, but this looks like a trillion dollar expense to me.

As a cynic, I'll bet BP is not carrying this expense on thier ledgers.

[defendandprotect]

3. No -- nor can the shareholders punish BP executives . . .

which is why the SC ruling is criminally idiotic --

That's the difference between going into business with family and friends who do

have leverage on you -- and going into business with anonymous OPM who have no

leverage on you.

[qazplm]

4. indirectly, yes

by penalizing the corp so much that they can't afford to pay a dividend.