On March 11, 2016, a New Jersey Appellate Court affirmed the lower court’s finding that four hedge funds could not reach American Oriental Bioengineering Inc.’s shares in Aoxing Pharmaceutical Co. Inc., another drug company, to satisfy the funds’ $21 million default judgment. The court ruled that “actual seizure of certificated shares is required before a creditor may reach a debtor’s interest in those shares.”
The hedge funds – Wolverine Flagship Fund Trading Ltd., Whitebox Concentrated Convertible Arbitrage Partners LP, Whitebox Multi-Strategy Partners LP, and Pandora Select Partners LP – had sued American Oriental for defaulting on certain senior convertible notes, and a default judgment was awarded when American Oriental did not defend the action. After discovering that American Oriental’s only real asset was a 34 percent interest in Aoxing, the funds filed an injunction ordering Aoxing and its stock transfer agent to cancel American Oriental’s interest in the shares and reissue the stock certificates in the funds’ name to partially satisfy the funds’ $21 million judgment. The lower court denied the injunction, the hedge funds appealed, and the appellate division affirmed.
Claimants should take note of this recent New Jersey decision to ensure that their opponents have liquidity to satisfy a potential judgment, and if not, that their opponent’s only real assets are an interest in another company and that those stock certificates can be obtained.
The decision is Wolverine Flagship Fund Trading Ltd. et al. v. American Oriental Bioengineering Inc. et al., case number A-0654-14T1, in the Superior Court of the State of New Jersey, Appellate Division.