Tilray-Privateer Merger May be Delayed
Fraudulent conveyance is when the assets of a company are moved out of the reach of debt holders for the sole purpose of avoiding paying the debt owed.
In the case of Privateer, Trimax shareholders allege they convinced the owner of a subsidiary of Trimax to sell them assets for almost nothing so that Privateer would not have to pay back the Trimax bondholders before buying the assets.
This only makes sense if the original owner of the subsidiary was then given an ownership stake in the new Privateer-owned LLC, though this has not been alleged or confirmed.
Below we’ve listed some of the signs lawyers use to prove fraudulent conveyance. We’ve bolded reasons that sound like they may apply in this case.
- Becoming insolvent because of the transfer
- Lack or inadequacy of consideration
- Family, or insider relationship among parties
- The retention of possession, benefits or use of property in question
- The existence of the threat of litigation
- The financial situation of the debtor at the time of transfer or after transfer
- The general chronology of events
- The secrecy of the transaction in question
- Deviation from the usual method or course of business
With the merger between Privateer and Tilray rumoured to close by Friday, we will know shortly if this lawsuit will delay the merger.
A derailment of the merger may further frustrate if not alienate investors who have seen the stock fall on tough times in recent months.
Tilray’s stock has experienced an astounding decline from its emotionally charged September 2018 rise to $300. Cannabis stocks have been under immense pressure in 2019 due to disappointing sales and a slow rollout of retail points of sale in Canada.
Tilray (BLUE) the Worst Performing Large Cannabis Stock in 2019
Background of the Trimax Lawsuit
Privateer Holdings, the privately held parent company of cannabis pioneer Tilray Inc. (NASDAQ: TLRY) has found itself ensnared in a legal dispute over the alleged manipulation of a rival company.
The Canadian company has been accused of intentionally attempting to bankrupt Trimax Corporation (OTC PINK: TMXN), a subsidiary of Saavy Naturals Inc.
It is being sued for $150 million for allegedly planning to take over the company and its line of all-natural body care products after orchestrating its financial downfall.
Joseph M. Vasquez III, a shareholder of Trimax, was listed as the complainant in the Dec. 2 legal filing.
It alleges that Tilray operated an “outrageous scam” through its private owner that was designed to coerce two Shark Tank entrepreneurs to bankrupt Trimax, the company they partially own, so that it could then purchase the maker of soaps and creams at a depressed valuation.
Saavy and Trimax executives appeared on a season 7 episode of CNBC’s Shark Tank and were able to successfully get the shrewd investors to buy into the company. Since the Shark Tank appearance, sales of Trimax soaps and other natural beauty products have soared both online and at major retailers like Wal-Mart.
Case May Overshadow Momentum Gained from Merger
A definitive agreement was made between Tilray and Privateer back in September by which the two entities would effect a downstream merger that would make Privateer a wholly-owned subsidiary of Tilray. Under the plan, Privateer shareholders would receive newly issued Tilray shares as well as options to purchase additional shares equal to the amount of Tilray shares held by Privateer investors.
As part of the agreement, 75 million shares owned by Privateer, representing more than three-fourths of all outstanding Tilray shares would be gradually released only over an extended two-year lock-up period. The purpose of the transaction according to Tilray management is to give Tilray “greater control and operating flexibility”. The move has helped to alleviate investor concerns that Privateer, as Tilray’s largest shareholder, could potentially dump the stock.
The Trimax lawsuit now resides in a Florida federal court after being relocated from Florida’s state court system. It is unknown at this time when the next hearing in the case is scheduled.
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