Don't Pay Twice for Your Equity!
August 15, 2003
In certain cases, a company may seek to exchange its outstanding debt for equity while also extinguishing (or 'squeezing-out') the interests of some or all of its prior shareholders. The need to reduce or eliminate shareholders typically stems from perfectly valid business reasons, including a desire to avoid becoming a reporting company under federal securities laws, to limit ongoing obligations to many small shareholders or to change the equity sponsor. In addition, the parties may seek to effect the transaction 'out-of-court' due to a perception (or the reality) that bankruptcy proceedings would take longer or damage the business.
How to Avert or Survive a Software Audit
August 15, 2003
<i>Ed. Note: One would expect law firms to consider it beneath them to deliberately have staff members ' or those of an ancillary business ' use illegal software copies. But the potentially high cost and embarrassment that can result from even tacitly permitting violations of software licenses should merit proactive attention by firm management.</i>
Don't Pay Old Equity That Is Truly 'Under Water'!
August 15, 2003
As discussed last month, the law clearly shows that parties structuring cash-out mergers with distressed debtors must focus on two things: 1) timing the debt-for-equity exchange (and the resultant debt cancellation) so not to occur prior to the merger's effective time, and 2) demonstrating that the debtor was at 'the brink of bankruptcy' at the merger's effective time. A clear record should be built and maintained on these points, and the structure should accommodate the technical legal requirements.
Exceptions to Dischargeability
August 15, 2003
For many years, financial or securities executives knew that if they had not committed a fraud or had not been fined by the Securities and Exchange Commission (SEC), they could get a discharge in bankruptcy by filing for Chapter 7 or 11. Negligently committing a securities violation would not preclude a bankruptcy discharge for the civil liability flowing therefrom.
Insurance Assurance
August 15, 2003
The insurance market is undergoing turmoil as a result of recent trends, including terrorism, corporate scandals and skyrocketing healthcare costs. Premiums are soaring, causing firms to cut back on coverage or to cut into their profits ' choices that could have a profoundly adverse impact on the firm's future success.
Measurable Results Through Profit Centers
August 15, 2003
Profitability pressures are leading firms of all sizes to create and implement strategic plans. These strategic plans often call for expansion and growth of practice areas, growth through lateral hires, or creation of entirely new practice groups. Concurrently, partner compensation methodologies are being revised to hold individual attorneys accountable for their own results.
Standing on the Edge
August 15, 2003
The fact pattern is all too common: A company with an extremely over-leveraged balance sheet is hemorrhaging cash and may already be in disrepute with its trade creditors (of whom there may be thousands). The business is beyond repair. A bank group that has liens on nearly all of the company's assets wants to use Chapter 11 to liquidate those assets to recover as much as it can. The liquidation may be piecemeal (as is common with failed retailers) or it may be as a going concern (as is more common in the industrial sector), but either way the debtors are heading toward a Chapter 11 liquidation.
How to Defend Officers and Directors in a Management-Hostile Environment
August 14, 2003
As noted last month in Part One of this article, it is less common, but not unheard of, for the debtor itself to directly provide funds to defend and indemnify its D&Os, in addition to, or in lieu of, maintaining D&O insurance or to address a situation where the D&O has refused coverage (which is <i>not</i> that uncommon of an development).
