Transportation division and marketing division

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Reference no: EM131725735

Tenron, INC large energy company is comprised of an exploration division, a development division, a transportation division, marketing division. The transportation division purchased natural gas from the company’s own gas development division, but the majority of the transportation division’s purchases were smaller private gas producers. The contracts called for the transportation division to take and pay for gas, regardless of whether or not it has resold the gas.

Energy prices dropped dramatically, and the transportation division found that for every ten units of natural gas it was forced to take and pay for them the private gas producers, it could sell only one unit. At some point, the transportation division will not be able to continue this money-losing practice caused by its contracts with these gas producers.

If the transportation division refuses to take delivery of the gas, the producers will sue (and they probably would win) Tenron, which has sufficient assets to pay these judgments. Or, Tenron could protect its assets by selling the transportation division. Then the new owner could threaten the gas producers that if they do not renegotiate the contracts, the new owners will put the new transportation company – which would have far fewer assets than Tenron had – into bankruptcy to protect the new company from paying the producers’ judgments. (The Bankruptcy Judge will discharge (cancel) all the debts, even court judgments, of the now bankrupt new company.)

Reference no: EM131725735

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