Corporate Compliance and Governance Blog

In times of economic crisis, reducing your exposure to bankruptcies is critical to your business survival. It can be difficult to know where to begin, however, as bankruptcies pose risks that are often scattered and obscured throughout large organizations. Communication and collaboration between legal, finance, and operations functions is vital to mitigate risks and reduce costs because different functions possesses unique expertise, knowledge, and business intelligence. For instance, legal can enforce creditor rights in state court or bankruptcy proceedings, finance can manage customer credit exposure and collections, and operations can identify threats to the supply chain and enterprise infrastructure. Bringing these diverse teams together can be challenging, particularly if they have functioned independently in the past and lack the technological tools to share their knowledge and workflows.

Legal departments can provide valuable assistance to other departments and business units by acting proactively. For example, legal can negotiate debt settlements, issue demand letters, or take legal action earlier in the collection process than done traditionally. Legal can reduce credit exposure by assisting finance in making proper reclamation demands, stopping goods in transit to insolvent companies, and determining whether to continue doing business with companies operating under bankruptcy protection. After a bankruptcy filing, legal can help repossess collateral by obtaining relief from the automatic stay, file administrative claims, ensure that defaults are cured when leases and contracts are assumed or assigned, and assert “critical vendor” leverage, where possible. Legal can help reduce credit exposure prospectively by negotiating better payment terms when dealing with suppliers, customers, landlords, tenants or other contract counterparties, including requiring increased assurances of payment and performance or more stringent default or termination provisions. Finally, legal can make sure debt repayments from potentially insolvent customers are structured so as to preserve defenses to preference liability in case the customer eventually files for bankruptcy.

Continue reading "In-House Legal Department's Role in Managing Bankruptcy Risks and Costs" »

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Posted In: Matter Management

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Cost-Effective Subpoena Compliance: Fulfilling Subpoenas Without Violating Applicable Privacy Laws

Complying with a wide variety of incoming subpoenas can be a burdensome task for corporate legal departments with increasingly limited money, time, and staff resources. Juggling and tracking multiple subpoenas including gathering voluminous amounts of documents and meeting court-imposed deadlines requires seamless coordination between individuals and across departments. Late or incomplete compliance with subpoenas can result in court-imposed penalties and adverse litigation outcomes against the company and vital stakeholders, especially if fulfillment is done in violation of certain financial, electronic communication, and medical information privacy laws.

Regardless of the nature of your business, your company will have to respond to any litigation subpoenas that it receives. If you fail to comply, courts may hold your company in contempt and possibly impose fines or penalties such as court costs, attorney’s fees, or sanctions. As an extreme case of noncompliance, two nonparties were held in contempt of court for their willful failure to comply with court-issued subpoenas and orders and assessed $216,169 for plaintiff’s attorney’s fees.

Besides complying with litigation subpoenas, companies in different industries may also need to comply with financial, electronic communications, or medical privacy laws. For example, telecommunication and internet service providers must comply with the Stored Wire and Electronic Communications Act (SWECA) under which persons aggrieved by the wrongful disclosures of electronic communications are afforded civil remedies including injunctive relief, actual damages, reasonable attorney’s fees and costs, and punitive damages if disclosures are willful or intentional. Similarly, financial institutions also face potential liability for not adhering to the stringent customer privacy protections embodied in the Right to Financial Privacy Act (FPA). For disclosing customer financial information in violation of FPA, financial institutions will be liable for actual damages, attorney’s fees and costs, and punitive damages if disclosure was intentional or willful. Additionally, health care providers and health plan administrators must be careful not to disclose protected personal medical information when responding to subpoenas except as permitted under the Health Insurance and Portability Accountability Act of 1996 (HIPAA).

Continue reading "Cost-Effective Subpoena Compliance" »

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Posted In: Matter Management

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Olson v. Halvorsen, et al., C.A. No. 1884-VCL, Lamb, V.C. (Del. Ch. Oct. 22, 2008). The Chancery Court, in granting summary judgment to the defendant partners of a hedge fund, held that the Statute of Frauds applies to LLC operating agreements, an issue that had never before been addressed by the Court. The Court stated that (1) an oral LLC agreement provision or multiple provisions that cannot possibly be performed within one year are unenforceable, and (2) provisions of an oral LLC agreement that could possibly be performed within one year will remain enforceable. Here, the plaintiff argued that an “earnout” provision could be performed within a year, but the Court found it unenforceable because it called for payments of the LLC income over multiple years, as well as other requirements of the LLC partners that the Court believed could not be performed within one year.

Continue reading "Recent Corporate and Alternative Entity Decisions" »

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Posted In: Delaware Law

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In today’s economic climate, garnishments have increased as much as 20% over 2007 and are expected to increase up to 38% in 2009. Without a robust compliance program, companies that receive a high volume of wage garnishments can face significant liability exposure to third-party creditors and governmental agencies (including child support enforcement agencies). Federal and state law can impose substantial civil penalties in addition to possible criminal charges for failing to comply with employee wage garnishments properly and in a timely fashion.

Developing a garnishment compliance program can be a challenging undertaking for companies with employees in a number of different states. Although the federal Consumer Credit Protection Act sets basic standards governing compliance with wage garnishments, each state can create supplemental wage garnishment laws adding further employee protections or imposing stiffer noncompliance penalties. As a result, complying with a patchwork of federal and state garnishment and employment laws can be a daunting task. Even so, strict compliance is a must because employers risk potential liability on at least two separate fronts. First, employers can face civil penalties and liability and even criminal charges for not properly withholding and remitting amounts to creditors and governmental agencies. Second, employers can be confronted by wrongful discharge or wrongful dismissal actions and severe civil penalties as high as $10,000 per violation for discharging or firing employees that are subject to a garnishment.

Continue reading "Third-Party Garnishment Liability: Are You Properly Managing Employee Wage Garnishments?" »

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Complying with multiple business licenses, permits, and tax registrations can be frustrating and error prone. Not adhering to the ever-changing local requirements can jeopardize the status of your company or result in large fees imposed upon you and even lead to a government shut-down of your service.

If you're facing any of these issues with your business licenses:

* Unable to identify which of the 3,000 counties, and over 1,000 municipalities to file a license
* Can't find a single source for all your needs across the states, counties and municipalities
* Difficulty in determining which of the over 150 business license types you're required to file
* Facing exorbitant costs to maintain your business license and permit filings
* Don't have a portfolio management tracking system to ensure your licenses don't lapse

CSC can help you overcome all of the above.

Continue reading "State, County and Municipal Business Licenses Nationwide " »

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Posted In: Business Licenses

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CSC's Garnishment Processing Service can significantly reduce your costs and get you out of the garnishment business.

Problem: Fortune 500 companies and others are seeing substantial increases in garnishment volumes in today’s economic climate. Increased paper traffic, rapid turn-around of responses for compliance, and AP obligations are all costly to staff, especially in a time of budget cuts.

Solution: CSC's Garnishment Processing Service can significantly reduce your costs and get you out of the garnishment business. CSC will:

* Receive, index and scan all garnishment documents
* Verify employment
* Prepare and send all responses
* Integrate with your company's AP system to automate check processing
* Store and manage documents for records management compliance and disaster recovery
* Provide reports to confirm compliance and identify trends

CSC's affordable Garnishment Processing Service reduces your costs, ensures compliance and lets you focus your resources on growing your business.

Contact Reyner Miekle via email or 800-927-9801 x3273 to learn how the CSC Garnishment Processing Service can help you reduce costs and risks.

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The starting point for conducting a UCC search is to identify the correct name of the debtor. A financing statement is sufficient under Article 9 only if it provides the correct name of the debtor or if a search of the correct name would disclose the record. Under these rules it would appear that a search under only the correct name of the debtor would be sufficient to disclose all interests in the debtor’s collateral.

Unfortunately for the unwary searcher, a search under just the correct name of the debtor may not reveal all the potentially effective records. There are circumstances where a financing statement or other lien may be indexed in the UCC records under something other than the debtor’s correct name. These records could be fully effective to perfect the security interest in spite of debtor name variations.

Continue reading "Be Sure to Search All Relevant UCC Debtor Names!" »

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Posted In: Uniform Commercial Code UCC

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Many state, county, and local governments require companies to obtain business licenses and permits before they can start conducting business. The various licenses imposed serve to regulate business and generate revenue for states, counties, and municipalities.

Every type of business is subject to a number of tax obligations, permits and license requirements, zoning and other restrictions at the city, county, state, and federal level. Licenses are required for existing corporations, new businesses, and non-incorporated businesses. Failure to register could result in fines, notices, and the inability to conduct business.

Continue reading "What Type of Business License Do I Need?" »

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Posted In: Business Licenses

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In re TD Banknorth Shareholders Litigation, C.A. No. 2557-VCL, Lamb, V.C. (Del. Ch. July 29, 2008).

The Court granted the plaintiffs’ motion for certification as class representatives in a class action brought by former investors who claim that the defendants improperly initiated a transaction in violation of a stockholders agreement. The Court reasoned that the plaintiffs satisfied the adequacy requirement of Court of Chancery Rule 23(a)(4) because both plaintiffs had sufficient knowledge of, and participation in the litigation, and there was no evidence of improper conduct of counsel.

E.I. DuPont de Nemours & Co. v. Bayer CropScience L.P., C.A. No. 3741-VCL, Lamb, V. C. (Del. Ch. July 29, 2008).
The Court denied preliminary injunctive relief to the plaintiff, DuPont, in a breach of contract case dealing with a supply and license agreement between the two chemical companies. The Court reasoned that DuPont, which sought specific performance of a supply agreement, could not establish by “clear and convincing evidence” its entitlement to the relief sought and that the balance of hardships did not warrant preliminary injunctive relief.

Continue reading "Recent Corporate and Alternative Entity Decisions from the Delaware Courts " »

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Posted In: Delaware Law

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Contract management has become increasingly complex.

Paper traffic from contract notices is overwhelming.

Fortune 500 companies and others are managing hundreds to thousands of contracts with multiple notice provisions, renewal dates, related litigation, and rigorous audit, tracking and compliance requirements.

Managing vendors and invoices is extremely time-consuming.

All these demands are costly in an economic climate with increasing budget pressure to reduce costs.

CSC provides a Contract Management Solution that can:

* eliminate the burden of processing notices
* significantly reduce your costs
* minimize your risks
* manage key dates, critical data, documents, and vendors
* organize and classify contracts

Continue reading "Reduce the High Costs and Risks of Managing Contracts " »

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In Meecorp Capital Markets, LLC v. Tex-Wave Industries, LP, 2006 WL 3813779 (S.D. Tex. 2006) one of the issues was the enforceability of a springing guaranty. Under the terms of the guaranty the guarantors had no liability if they cooperated with the foreclosing lender after default. But the guaranty became enforceable if the underlying loan was in default and the guarantors interfered with the lender's efforts to initiate and conclude a mortgage foreclosure action. The exact language of the guaranty was as follows:

Notwithstanding anything else contained herein to the contrary, if, after a default shall occur under the Loan Agreement and the Note, if the Guarantors shall cooperate with the Lender in realizing on the collateral, including without limitation, the foreclosure of the Mortgage, and shall not in any way interfere with the Lender in connection therewith, and the foreclosure sale shall take place without interference by any of the Guarantors or principals, officers, or directors of the Borrower, then the Lender shall waive the provisions of this Guaranty and shall deliver the Guaranty back to the Guarantors marked "satisfied".

On June 15, 2004 Meecorp agreed to lend Tex-Wave a total of $4,620,000.00 to build a hot-dip galvanizing facility in Robstown, Texas. Three separate promissory notes were signed by Tex-Wave. Messrs. Monty Guiles and David Croft each executed a personal guaranty containing the above-mentioned language.

Continue reading "Lender Denied Enforcement of Springing Guaranty " »

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The court in In re Restructuring, Inc., 532 F.3d 355 (5th Cir. 2008) was asked to equitably subordinate certain “eleventh hour” loans by corporate insiders on the grounds of inequitable conduct. Finding no harm to the borrower or the unsecured creditors, the court refused to do so.

John and Jeffrey Wooley were officers and directors and the largest shareholders in a public company known as Schlotzsky’s, Inc. When the company experienced financial stress in 2003, the Wooleys lent the company $1 million in April and $2.25 million in November.

The April 2003 loan was secured by royalty payments from franchisees, the company’s intellectual property rights and other intangible property. The Wooleys and the corporation had separate legal counsel in the April 2003 loan negotiations. The corporation’s audit committee and board of directors approved the terms and the transaction was disclosed in the company’s SEC filings.

Continue reading "Court Refuses to Subordinate Claims of Secured Creditors" »

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