- 10 -
in the minutes, it was decided that the subsidiary should
continue business in spite of its losses. In October the
officers of WFGI traveled to Paris, where they discussed the
French subsidiary's situation with its accountants and legal
counsel. Upon their return, acting in their capacity as the
executive committee of the board of directors of WFGI, they
adopted a resolution canceling the outstanding indebtedness of
the French subsidiary reflected in the intercompany account as of
September 30, 1984, $1,061,425. The resolution was made
retroactive to the last day of FY 1984. In support of their
action, they cited the subsidiary's disappointing sales during
the year and its present insolvency; the parent's intervention to
maintain the subsidiary's line of credit at Banque de la Cite;
the defalcations of the local manager; the warnings they had
received from the subsidiary's accountants and counsel that its
capital must be increased in order to avert involuntary
liquidation under French law; and the threat that Selene's
lawsuit would lead to insolvency proceedings. They concluded:
the French Subsidiary is not now able to pay its
indebtedness to its parent corporation, * * * that
there is no basis for believing that such indebtedness
will be paid within the foreseeable future, and that
the only realistic way to deal with the potential
problems regarding other creditors and with the French
Government is for the French Subsidiary's indebtedness
to the parent corporation to be cancelled.
The subsidiary's financial statements for FY 1984 were
available by December 1984. They showed a heavy loss for the
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