Could a Louisiana public port accept company stock to settle a bankruptcy debt?

Plain-English summary

In 2005, the Louisiana Attorney General concluded that the Greater Baton Rouge Port Commission could accept common stock as payment of a debt owed by a bankrupt private company. The approved reorganization plan would distribute stock to unsecured creditors, including the port. The AG distinguished receiving shares to collect a debt from using public money to buy stock as an investment, which the Louisiana Constitution prohibited.

The AG also said the port could sell its bankruptcy claim before receiving shares, provided the price was commensurate with the claim's value under the public-funds rule. It viewed a broker hired to sell the stock as a professional-services contractor, outside the public bid law, and recommended using a request for proposals to evaluate brokers.

Currency note

This opinion was issued in 2005. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could the port accept stock from the debtor's bankruptcy plan? A: Yes. The AG said taking stock to collect a debt was different from subscribing to or purchasing stock for investment.

Could the port sell its claim before the stock arrived? A: The opinion said yes, while emphasizing that the sale price should be commensurate with the claim's value.

Did the port need to publicly bid a stock-broker contract? A: The AG said the public bid law did not apply to hiring a broker for professional services. It recommended a request for proposals, even though it found no mandated award method for that contract.

Background and constitutional framework

The port held a disputed claim against a private company that filed for bankruptcy. Its claim entered the unsecured-debt pool under a court-approved plan, with stock to be distributed to creditors. The AG said the port would receive the shares “as payment of a debt” and planned to sell them, rather than hold an investment. It interpreted Article 7, Section 14 of the Louisiana Constitution as barring public investment in private stock, while allowing receipt of stock to satisfy a debt. Rejecting the distribution outright could itself mean giving up a valuable claim without obligation, the opinion reasoned.

Citations

• Louisiana Constitution, Article 7, Section 14 (public property and stock-investment limits discussed in the opinion).
• Lafourche Parish Water District No. 1 v. Carl Heck Engineers, Inc. 346 So.2d 769 (La. App. 1 Cir. 1977) (professional-services contract point cited in a footnote).

Source

• Landing page: https://www.ag.state.la.us/Opinions
• Original PDF: https://www.ag.state.la.us/Opinion/Download/05-0022

Original opinion text

April 27, 2005
Opinion Number 05-0022

90-A-1 Public Funds & Contracts
Article 7, Section 14 of the Louisiana Constitution Mr. Stephen W. Glusman, Attorney for the
Greater Baton Rouge Port Commission
Greater Baton Rouge Port Commission may
accept stock as payment of a debt.
GLUSMAN, BROYLES & GLUSMAN, LLC
P.O. Box 2711
Baton Rouge, LA 70821-2711

Dear Mr. Glusman:

The Greater Baton Rouge Port Commission questions if it may receive the common stock of a reorganized company as payment of a debt owed to the Port. The Port also questions by what procedure may it sell the stock it receives and further questions if it may sell its claim prior to the time it receives the stock.

In this instance, the Port is owed a debt by a private entity. The entity filed for bankruptcy in January of 2004. The Port filed a proof of claim and the entity objected to the Port’s claim. The Bankruptcy Court resolved the objection by placing the Port’s claim into the pool of unsecured debt. The bankruptcy reorganization plan results in the unsecured debtors each receiving a percentage of common stock of the entity. The plan has been approved by the Bankruptcy Court. Thus, the Port will receive the stock as payment of a debt. It will not hold the stock for investment purposes. Rather, it plans to liquidate the stock as quickly as possible.

Article 7, Section 14A of the Louisiana Constitution prohibits the state or any of its political subdivisions from loaning, pledging, or donating anything of value to any person, association, or corporation. It also prohibits the state from subscribing to or purchasing the stock of a corporation, association or any private enterprise. The purpose of this constitutional prohibition of subscribing to or purchasing stock is to disallow the use of public funds for private investment.1

The Port is not subscribing to or purchasing the stock for investment purposes. Rather, it will accept the stock as payment of a debt due as ordered by the Bankruptcy Court. It is our opinion, therefore, that the Port may accept the stock. To do otherwise may violate Article 7, Section 14 of the Constitution because the Port would be giving up its claim, something of value, when it is under no obligation to do so. That prohibition is at the heart of Article 7, Section 14.

1
st
Louisiana State Employees’ Retirement System, et al, 423 So.2d 73(La. App. 1 . Cir. 1982), writ denied, 427 So.2d 1206.

Page 2

Opinion Number 05-0022
Mr. Stephen W. Glusman, Attorney for the
Greater Baton Rouge Port Commission
GLUSMAN, BROYLES & GLUSMAN, LLC
Page -2-

You question if the Port must utilize Louisiana’s public bid laws should it decide to sell the stock it receives. In short, we do not believe the public bid law would apply in this instance. You indicated that generally the Port does not sell stock directly. It sells the stock through a broker pursuant to a professional stock sale contract. Contracts for services, professional or otherwise, are not required to be bid under the public bid law.2 We believe the hiring of a broker is a contract for professional services. Our office recommends that although there is no specific method for the award of contracts for services the Port use a request for proposals to evaluate potential contractors.3

It is also our opinion that the Port may sell its bankruptcy claim. We understand that the Bankruptcy Code specifically allows for this. We do note that the value of the claim should be commensurate with the price in light of Article 7, Section 14 of the Constitution.

With kindest regards,

Yours very truly,

CHARLES C. FOTI, JR.
Attorney General

BY: _________
TINA VICARI GRANT
Assistant Attorney General

CCF, jr./TVG/dam

2
st
Lafourche Parish Water District No. 1 v. Carl Heck Engineers, Inc. 346 So.2d 769 (La. App. 1 Cir. 1977) 3 Attorney General Opinion No. 02-0152.

Page 3

Opinion Number 05-0022
Syllabus

90-A-1 Public Funds & Contracts
Article 7, Section 14 of the Louisiana Constitution

Greater Baton Rouge Port Commission may accept stock as payment of a debt.

Mr. Stephen W. Glusman
GLUSMAN, BROYLES & GLUSMAN, LLC
P.O. Box 2711
Baton Rouge, LA 70821-2711

Date Received:

Date Released: April 27, 2005

Tina Vicari Grant
Assistant Attorney General