Saturday, February 28, 2009

The Fable of Jan and the Golden Parachute

Jan worked for a big German auto maker, somewhere in the department that provided financing to people buying their cars. For reasons best known only to Jan, he found that remaining at that job was no longer tenable, but he managed to convince a Dubai sheikh that he was one of the top Europeans in auto financing, and he was given a contract with a golden parachute. The contract made Jan CEO of an LLC owned by the sheikh (via a subsidiary), and guaranteed three years employment. Should Jan's contract be terminated for any reason other than criminal behaviour, Jan had to be paid out the full three years, plus severance, gratuity, and benefits.

An LLC must be started with some initial capital. In the UAE, I believe that is at least €250,000. This would have covered Jan's salary for one year, but Jan hired another twenty or so people, and the €250,000 was soon gone. The sheikh (via his subsidiary) replenished the depleted coffers, but that money was quickly gone as well. After two years, the sheikh had plowed more than €1,000,000 into the LLC, and then the crash hit Dubai, and the sheikh had no more money for the LLC.

Jan, however, is still owed €285,000 according to his contract. His employees are also entitled to three months salary as severance, plus another two months salary as gratuity. Jan was told, 'Get it from the LLC. The LLC is definitely obliged, under UAE law, to pay all employess the contractual amounts owed.'

But the LLC has no money in its account, and no assets.

Jan is, therefore, suing the sheikh. A lawyer took his retainer, and said he had a good case, since the sheikh owns the LLC, and is therefore obligated to pay all contractually obligated accounts.

However, the owner of an LLC is not responsible for its debt anywhere in the world unless the owner can be proved malfeasant—that's what LLC means. In this case the owner did nothing wrong (though one might say the owner did something foolish in giving Jan €1,000,000).




There is a book about job security, popular in the US, called What color is your parachute? The trope is that persons on a plane should not wait until the engines fail to check the color of their parachutes, nor should employees wait until they have been laid off to ensure that they have alternative employment lined up.

Jan, of course, was absolutely certain that he had a solid gold parachute. However, when he checked, it turned out to be solid pyrite.

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