eli5: How does it work when a company is sued for millions of dollars? do they actually pay that out in cash/stock/etc..


eli5: How does it work when a company is sued for millions of dollars? do they actually pay that out in cash/stock/etc..

In: 13

If they lose and a judgement is entered against them, they need to pay that judgement (assuming no appeal is taken or the company loses on appeal). Usually that’s done through a check or some sort of wire or electronic funds transfer. If the company needs to borrow funds or sell assets to raise the cash, so be it. But plaintiffs (and their lawyers) want cash. In extraordinary circumstances, different arrangements might be made, but those are exceedingly rare. Checks and bank transfers are used to pay judgments almost exclusively.

In many cases these costs will be met by liability insurers. In the UK, and I think most countries, companies are required to have public liability, employers liability, product liability, and sometimes other kinds, as appropriate. Just like third-party motor insurance, these are intended to make sure people get the compensation they’re entitled to.

The insurer will be involved with – or even run – the defence of the case, and if they lose they’ll pay out the compensation (or at least part of it).

The companies will come up with a payment arrangement. X amount of money by Y date

The payments will usually be in cash, but since companies don’t have a lot of liquidity they will have to either borrow money or sell assets to pay off the fine.

A lot of companies also hold liability insurance to pay out such judgements.

Step 1: appeal.

Step 2: try to reduce the judgement amount.

Step 3: determine if the amount is crushing or petty cash. If it’s the former, declare bankruptcy and try to hide as many assets as possible. If it’s the latter, pay and move on.

Remember that businesses are amoral. Sometimes fines and judgements are simply the cost of doing business. For example, if it costs 1000 dollars per ton to treat my sewage in port, but I only get fined a hundred bucks if I get caught dumping it at sea… I know what keeps my shareholders happy.

Or a more personal example: I once had a roommate who realized that she was only getting a ticket once or twice a month and the fine was $40 if paid early. Parking was $20 a week. She quickly just considered the fine a discount on parking.

I worked at a small-ish company that sued a large-ish company for patent infringement. We eventually won in court and in appeals, and received cash equivalent to twenty times our normal annual gross revenue. Huzzah!

Except the cash influx destroyed our company (a complicated story). Sigh. Would have collapsed on its own soon, though, so no huge loss. The paying company survived for much longer, after.