Judge Puts Brakes On UAL's ESOP Sell Off

February 24, 2003 (PLANSPONSOR.com) - State Street Bank & Trust, the trustee for UAL Corp's employee stock ownership plan (ESOP) may not sell off UAL ESOP shares, a Chicago bankruptcy judge has ruled.

Judge Eugene Wedoff, who has presided over the UAL bankruptcy imbroglio, ruled State Street cannot resume the sale of the United Airlines parent company’s ESOP shares because the net operating losses constitute a major asset in UAL’s business reorganization.   So the ESOP shares are necessary to make the company more attractive to new shareholders upon emergence from federal bankruptcy protection, according to a Dow Jones report.

Wedoff ruled that the balancing test between the positions of UAL and State Street tilted “very substantially in favor of UAL.”

State Street’s attorneys maintained the same position they have from the start:   the trustee must act quickly to retain the value of the investment.  The lawyers noted further that the stocks of other companies in bankruptcy have a trend of falling in the weeks after the initial bankruptcy filing.

However, UAL attorneys argued that such stock sales would trigger an ownership change that ultimately would have prevented the airline from spreading net operating losses over several years’ worth of future tax returns. UAL expects total net operating losses of between $3.1 billion and $ 4.3 billion.