Corporate Counsel for Company’s Acquisition of Building at Property Auction

Applicant: Kan Call Center
Country/Region: Taiwan, China
Applying for: Acquisition of Commercial Property via Auction
Case Type: Corporate Counsel
Time: One Month
Challenges:

• Auction of the property would take place in 30 days, which was not a lot of time to prepare
• Concern whether the company would have the funds to cash bid on the property
• The stock market was tanking and therefore making the opportunity cost even higher.
• Constant worry where the company would relocate if they lost the bid

BACKGROUND

The Senior Vice President of Kan Call Center, Joe Kan, was driving into work when he received a phone call from one of his call center managers, Jan. Jan was usually the first to arrive at the satellite office on a Monday morning. That Monday she was both confused and upset. The local police department had posted foreclosure signs on the outside office doors. The notice said there was a lien against the property with judgment and an auction in two weeks. Joe asked if her key still worked and it did. He was calm, but inside, secretly furious. Joe told her to get the staff answering calls and to inform any concerned employees that he was handling the situation.

The lien was no fault on Kan Call Center’s part. The business was only a renter. However, their company had just invested over $150,000 in infrastructure improvements to the call center offices. Kan Call Center felt comfortable doing so since they’d just signed a five-year lease. How could the landlord, Ms. Kwon, have let them spend the money on renovations and extend the lease on a property she was likely to lose? Joe felt betrayed and defrauded.

This was not a problem Joe had expected, and he realized he was white-knuckling the steering wheel. Where would he go for help? Then Joe remembered where he could turn for assistance: Tsang and Associates. Suddenly his grip on the wheel lessened.

KEYS TO SUCCESS

After a thorough consultation, Tsang and Associates laid out an action plan for Joe to address the quickly impending auction of the offices. Kan Call Center is a medium-sized international company with offices in the United States and Taiwan. Tsang and Associates advised Joe to coordinate with the company’s corporate counsel to establish four teams to investigate their options.

Team One would work with Tsang and Associates to investigate Kan Call Center’s legal options under Tenant Law. The legal team pulled a judgment lien and discovered Ms. Kwon had failed to pay her creditor on a $70,000 loan that had now ballooned to $300,000. The creditor was suing for all of her assets. According to the records, Ms. Kwon informed the creditor she had no ability to pay so the commercial property would go to auction. Ms. Kwon had not informed the Kan Call Center of any financial difficulties and negotiated in bad faith. Joe and the corporate counsel had many concerns. Should the Kan Call Center sue as well? Should the company try to negotiate with the lawyer representing the creditor suing Ms. Kwon before the auction is held?

Team Two looked into the possibility of attending the auction and bidding on the property themselves. Kan Call Center hired commercial appraisers to evaluate the worth of the property. Unlike residential properties where there are plenty of sales and fresh, suitable comparables, commercial properties are unique constructions with variable infrastructure. Rental value is also difficult to determine since the businesses are frequently owner-occupied and therefore rents are lower. Nevertheless, the appraisers evaluated the property’s worth at between $200,000 and $250,000.

Team Three put together a business plan and researched how the company would gather the $250,000 needed to bid on the property. Auctions require cash on the spot so the money would need to come from either obtaining a credit line from a bank, draining their cash reserves, or soliciting investment from private equity. The Kan Call Center normally operated on a $50,000 monthly cash reserve so gathering the funds would not be easy. They might have to pull money from other sources such as overseas marketing, which could hurt business. The auction would take place in thirty days so the clock was ticking.

Team Four researched Kan Call Center’s options under a worst-case scenario. Again, the corporate counsel had a lot of questions. If they decided not to bid for the property or get outbid would the new landlord kick them out? Should Kan Call Center attempt to sign a new lease with the new owner? Should they remove all the improvements so the new owner didn’t benefit at their expense? If the company had to move where would the offices be and how much would it cost to sign a new lease and move all the company’s computers, files, and equipment?

On the eve of the auction, there was a further unexpected complication. The stock market began to tank. Suddenly, the opportunity cost of using valuable company assets to bid on the property became even riskier. At the last minute, the corporate counsel held a midnight conference call with the United States and Taiwan. Together, they decided to move forward with the bid.

OUTCOME

The professional bidder hired by Kan Call Center won the bid at “way under” the valuation. This was a huge win for the company. Outright ownership would reduce the company’s operating costs going forward and there would be no loss on the sunk $150,000 costs for infrastructure improvements. Additionally, the company would save the expense of a lawsuit and having to move offices.

Tsang and Associates threw a party for the Kan Call Center employees with Cuban food catered by Porto’s Bakery. There were smiles all around at the successful outcome following a stressful month of research. Tsang and Associates are honored to have played a part in a small-business success story.