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This omission detracts from the officers' conclusion that the
intercompany debt was worthless.
The succession of untoward events during FY 1984 that the
officers of WFGI identified to justify their decision is not
compelling. The actions of Banque de la Cite confirm that the
French subsidiary's position had seriously deteriorated. But the
bank would have acted to protect itself as soon as doubt arose
that its loans would be repaid in full. It does not follow that
the French subsidiary was unable to repay any portion of its
debts. The misappropriated funds uncovered in July 1984 do not
appear to have had a substantial impact on the company's
finances. The Selene lawsuit and the advice that WFGI's officers
received from the auditors of the subsidiary concerning the
consequences of noncompliance with French capital requirements
seem to have played a significant role in the decision to cancel
the debt. But WFGI's willingness to cancel the debt in order to
avert the damage to its reputation that would result from
involuntary insolvency proceedings does not prove that the debt
was totally worthless.
The circumstances that confronted WFGI in FY 1984 might have
provided sufficient cause to cancel the intercompany debt even if
WFGI could reasonably have expected to recover some of it. At
that time elimination or capitalization of the intercompany debt
may well have seemed imminent in any case, as a necessary part of
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