Recapitalizations

What are recapitalizations?

Recapitalizations are financial transactions in which a company restructures its capital structure by altering the proportion of debt and equity. For example, in real estate transactions, recapitalizations may involve a change in property ownership structure or financing, such as refinancing loans, selling shares, or issuing new debt instruments. A common goal is to optimize the company’s financial stability and operational efficiency.

To further illustrate, suppose a real estate developer has a property that has appreciated significantly and wants to free up some equity to fund new projects. The developer could recapitalize by refinancing their existing debt with a new loan at a lower interest rate and use the cash proceeds to invest in other opportunities.

Need help with creating, structuring, or enforcing real estate transactions? Schedule your consultation today with a top real estate transactional attorney.

Which Florida laws, rules, and regulations apply to recapitalizations?

Recapitalizations in Florida real estate transactions correlate with the Florida Business Corporation Act, which sets the rules for organizing, managing, and dissolving corporations. Therefore, specific provisions, such as those related to shareholder approval and fiduciary duties, are particularly relevant to recapitalizations.

Additionally, federal securities laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934, may apply if the recapitalization involves issuing new securities. Compliance with these laws and any applicable state or local regulations is crucial to avoid potential legal disputes and financial penalties.

What are common issues associated with recapitalizations that lead to litigation?

The following issues tend to escalate transactional disputes to litigation:

• Breach of fiduciary duty: Directors and officers may face allegations of breaching their fiduciary duties by prioritizing their interests over those of the company or shareholders during a recapitalization.
• Inadequate disclosure: Failure to provide complete and accurate information to shareholders during the recapitalization process can result in shareholder disputes and litigation.
• Minority shareholder oppression: Recapitalizations can sometimes lead to minority shareholders feeling oppressed or unfairly treated, leading to legal disputes.
• Disagreements over valuations: Disputes may arise if parties disagree over the valuation of assets, debt, or equity during a recapitalization process.

When a set of facts is appropriate for legal advocacy or intervention, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation or another form of specialized advocacy, please contact our office to set up your initial consultation.

What are strategic measures to resolve issues and avoid litigation over recapitalizations?

• Conducting thorough due diligence: Ensure all relevant documents, financial statements, and legal requirements are carefully reviewed and analyzed to anticipate and address potential issues before they escalate.
• Clear and accurate communication: Confirm all parties, particularly shareholders, receive complete and accurate information throughout the recapitalization process.
• Establishing fair valuation methods: Adopting transparent and widely accepted valuation methods to determine the value of assets, debt, or equity can help minimize disputes.
• Obtaining shareholder approval: Seeking shareholder approval, as required by the Florida Business Corporation Act, can help ensure that the recapitalization process is in accordance with shareholders’ interests.
• Addressing minority shareholder concerns: Engaging in open communication and negotiation with minority shareholders to address their concerns and avoid potential oppression claims.

Please contact our office to set up your initial consultation to see what forms of legal advocacy or intervention may be available for your unique situation.

Frequently Asked Questions

1. How does a recapitalization affect existing shareholders?

Recapitalizations can affect existing shareholders in various ways, such as diluting their ownership stake or altering their rights to dividends and voting. Therefore, property owners and shareholders must understand the potential implications of a recapitalization on their interests and the application of Florida Statutes § 607.0624.

2. Can recapitalizations be challenged in court?

Recapitalizations can be challenged in court, especially if the transaction violates fiduciary duties, securities laws, or other applicable regulations. In addition, shareholders and other stakeholders may pursue litigation if they believe the recapitalization process was unfair or improperly conducted.

3. Are there alternatives to recapitalizations for real estate financing?

Alternatives to recapitalizations include traditional bank loans, private financing, mezzanine loans, or even crowdfunding platforms. Property owners should carefully evaluate their options and consult with financial and legal advisors to determine the best course of action for their specific situation.

4. How can property owners mitigate risks associated with recapitalizations?

Property owners can mitigate recapitalization risks by working closely with legal and financial advisors, ensuring proper disclosures, obtaining shareholder approval when necessary, and adhering to all applicable laws and regulations. This approach can help minimize potential disputes and legal challenges surrounding recapitalization.

Have more questions about real estate transactions and disputes?

Crucially, this overview of recapitalizations does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain tireless advocates at every step. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.