A man worked as an executive for a public company and received compensation in the form of stock in his employer company. His stock certificates were restricted. He could not sell the stock certificates for three years, and he could not assign the certificates. Only the employee could redeem the certificates for cash, and could do so any time during his lifetime. He could not bequeath the stock to his heirs. The man asked me whether a creditor could levy on his stock certificates.
There are very few cases in Florida dealing with a creditor’s rights in a debtor’s restricted stock. There are bankruptcy cases which hold that the present fair market value of the restricted stock, considering all restrictions, is part of the bankruptcy estate and may be taken by a trustee in bankruptcy. The debtor then could redeem the stock for its current market value considering the sale restrictions. I found state court cases that treated restricted stock as untouchable by creditors. The state court case stated that a creditor cannot take a stock from the debtor by legal process if the debtor could not voluntarily assign the stock to the creditor.
A creditor acquires no more than the debtor’s rights and interest in the debtor’s assets. Restricted stock is not an exempt asset. A creditor probably could levy upon the stock. The levy may prevent the judgment debtor from exercising his rights to redeem the stock. The company may intervene and contest the creditor’s attempt to sell the stock. I suspect that many creditors would levy upon the stock if nothing more than to prevent the debtor from accessing the value in this asset for his own benefit.
posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida