German Federal Labor Court Finds Certain Virtual Stock Option Forfeiture Clauses May Unreasonably Disadvantage Employees
On March 19, 2025, the German Federal Labor Court (Bundesarbeitsgericht or BAG) held in Case No.: 10 AZR 67/24 that certain forfeiture clauses in General Terms and Conditions of Business (Allgemeine Geschäftsbedingungen or AGB) regarding the expiration of virtual stock options upon termination of employment are invalid.
Quick Hits
The German Federal Labor Court ruled on March 19, 2025, that certain forfeiture clauses in General Terms and Conditions of Business regarding the expiration of virtual stock options upon termination of employment are invalid.
The court found that such forfeiture clauses unreasonably disadvantage employees by not adequately considering the work already performed and the associated entitlement to the options.
International companies might benefit from decoupling employee ownership at least from the German employment relationship to avoid legal uncertainties and enhance the attractiveness of their programs.
Background
Virtual stock options are a popular form of employee ownership. They allow employees to participate in the economic success of the company without actually purchasing shares. These options are often subject to certain conditions, such as length of service. Employees often acquire rights to virtual options in different tranches. This staggered acquisition of rights is called vesting. In addition, the exercise of vested rights is often dependent on an event beyond the employee’s control, such as an initial public offering (IPO) of the company. This often results in a situation where the value of virtual stock options can only be realized after a significant delay.
Many programs contain clauses that provide for the forfeiture of vested options when the employee leaves the company. The German Federal Labor Court has now ruled that such forfeiture clauses can be invalid if they unreasonably disadvantage the employee.
Case History
In the present case, the plaintiff was employed by the defendant from April 1, 2018, to August 31, 2020. The employment relationship was terminated by a timely voluntary resignation. In 2019, the plaintiff received and accepted an offer to be granted twenty-three virtual stock options. According to the employee stock option plan (ESOP), the exercise of the options required their exercisability after the expiration of a vesting period and an exercise event such as an IPO. The options could generally be exercised in stages after a minimum waiting period of twelve months within a total vesting period of four years.
At the time of the plaintiff’s resignation, 31.25 percent of the options granted to the plaintiff were vested.
The defendant rejected the plaintiff’s claim to these options based on the forfeiture clauses. The plaintiff argued that the forfeiture clauses were invalid because the options were an integral part of his compensation package.
The German Federal Labor Court’s Ruling
The Tenth Senate of the German Federal Labor Court ruled in favor of the plaintiff and found the following: the vested virtual stock options had not expired; the forfeiture clauses in the ESOP unreasonably disadvantaged the employee and were therefore invalid; the vested options constituted compensation for the work performed by the plaintiff; and the immediate forfeiture upon termination of employment did not adequately take into account the employee’s interests and was contrary to the legal concept of Section 611a (2) of the German Civil Code (BGB). In addition, the court found that the termination of the vested virtual stock options could be seen as an unjustified restriction to end the employment and seek a new job.
Issue of Restricted Exercisability Upon Voluntary Resignation
A key issue highlighted by the BAG in its decision is the restricted exercisability of options in the event of voluntary termination by the employee. These clauses unreasonably disadvantage the employee because they do not sufficiently consider the work already performed and the associated entitlement to the options. The immediate or accelerated forfeiture of already vested options upon voluntary resignation constitutes an unfair disadvantage and may act as a disincentive to resign, as employees may refrain from resigning in order to avoid financial losses.
In particular, international companies could consider decoupling employee ownership from the employment relationship and structuring it according to a different legal regime. This can help avoid legal uncertainty and make the programs more flexible and attractive to employees.
U.S. State Employment Law Developments, Reminders, and (Rapidly Approaching) Deadlines (US)
As we reported at the end of 2024, there are a number of critical employment law developments that will affect U.S. employers in the next several months, and, for some employers, in the next several days. Though not an exhaustive list, we focus here on some key upcoming deadlines for employers in Q2 and Q3 2025.
Paid Sick Leave
Missouri: Last Election Day, Missouri voters passed a ballot initiative requiring employers to provide employees with one hour of paid sick leave for every 30 hours worked, which leave can be capped at 40 hours per year (for employers with 1-14 employees) or 56 hours per year (for employers with 15 or more employees). By April 15, 2025, employers must provide a written notice to current employees about the new paid sick leave law, which will become effective May 1, 2025, the same date that paid sick leave must begin to accrue. New employees must receive notice of the law within fourteen (14) calendar days of commencing employment. Employers also must display a poster in the workplace informing employees about the law. (Note: The law is the subject of a pending constitutional challenge before the Missouri Supreme Court, which heard oral arguments on March 12, 2025. There is also a bill moving through the Missouri legislature to remove the paid sick leave component of the law. Despite these challenges, as of this writing, the law is still slated to go into effect on May 1, 2025.)
Alaska: Alaska voters similarly adopted a paid sick leave law in November 2024 via ballot initiative, but the law does not become effective until July 1, 2025 (the same day the state minimum wage increases to $13/hour). Alaska employers should prepare now to provide their employees with paid sick leave at the rate of one hour for every 30 hours worked, which leave can be capped at 40 hours per year (for employers with fewer than 15 employees) or 56 hours per year (for large employers with 15 or more employees). Employers shall give written notice at the later of the commencement of employment or August 1, 2025 that, beginning July 1, 2025, they are entitled to paid sick leave and the amount of leave; the terms of its use; and that retaliation against employees for exercising their paid sick time rights is prohibited. The Alaska Department of Labor has published FAQs for employers about the law.
Michigan: For Michigan employers that may have missed the news, the Earned Sick Time Act was reinstated, effective February 21, 2025 for employers with more than ten employees and October 1, 2025 for employers with ten or fewer employees. If Michigan employers have not already done so, they must allow employees to accrue one hour of paid sick leave for every 30 hours worked, with no accrual cap; provided, however, that employers are not required to permit an employee to use more than 40 hours per year if they employ 10 or fewer employees, or 72 hours of paid sick leave per year if they employ 11 or more employees. There is also a notice posting requirement.
Nebraska: Last November, voters in Nebraska passed Initiative Measure 436, creating a new statewide paid sick leave law. Employees accrue one hour of leave for every 30 hours worked, with accrual caps of 40 hours per year for employers with 1-19 employees and 56 hours per year for employers with 20 or more employees. Although there is still some time to prepare before the law’s effective date (accrual of paid sick leave begins October 1, 2025), employers must provide notice to employees of the new law by September 15, 2025; however, as of this writing, the Nebraska Department of Labor has not yet published a model notice.
City of Chicago: Pursuant to Chicago Municipal Code §§ 6-130-005 et seq., employees who work at least 80 hours for an employer in Chicago within any 120-day period are eligible to accrue one hour of paid leave and one hour of paid sick leave for every 35 hours worked in Chicago, with accrual capped at 40 hours of paid leave and 40 hours of paid sick leave per 12-month period. Payout of paid sick leave is not required, but beginning July 1, 2025, employers with 51 or more employees must pay out all unused, accrued paid leave upon termination. (Employers with 101+ employees are already subject to this requirement.)
As a reminder: Connecticut adopted a paid sick leave law that went into effect on January 1, 2025, and New York employers were required to provide employees 20 hours of paid prenatal personal leave per year beginning January 1, 2025. New York’s COVID-19 leave law will be repealed effective July 31, 2025.
Family Leave
Maryland: We previously reported that payroll deductions to support Maryland’s family and medical leave insurance (FAMLI) program would begin on July 1, 2025, with employers required to remit the first payments to the state in October 2025. This remains the law, and if unchanged, employee benefits will become available on July 1, 2026. However, the Maryland General Assembly recently passed a bill to further defer implementation dates for the program. If passed, the law would delay benefits eligibility to January 3, 2028. We will continue to track legislative developments, and Maryland employers also should consider registering for legislative alerts that might postpone payroll deduction requirements.
Pay Transparency
New Jersey: Under the New Jersey Wage Transparency Act,beginning June 1, 2025, employers with ten or more employees that do business, have employees, or take applications for employment in New Jersey must make certain internal and external pay disclosures. Covered employers must disclose, in new job postings and transfer opportunities advertised externally or internally, the hourly wage or salary (or wage/salary range) and a general description of benefits and other compensation programs for which the employee would be eligible. Noncompliance with the Act carries civil penalties from $300 to $600 per violation.
Vermont: Effective July 1, 2025, Vermont employers with five or more employees, at least one of which works in the state of Vermont, must include the compensation or range of compensation in each job advertisement. The law applies to any job posting for a position physically located in Vermont or to be filled by a remote worker outside the state who predominantly performs work for an office or work location located in Vermont. Vermont employers must therefore include the good faith expectation of the minimum and maximum annual salary or hourly wage range for all positions for which they are hiring, including ones open to internal or external candidates and ones into which current employees may be transferred or promoted. There are special rules for commissioned and tipped jobs.
Massachusetts: Beginning October 29, 2025, the “Massachusetts Act Relative to Salary Range Transparency” requires employers with 25 or more employees in Massachusetts to (1) disclose the pay range for a “particular and specific employment position” in the job posting, and (2) provide the pay range for a “particular and specific employment position” to an employee who is offered a promotion or transfer to such position, and (3) upon request, provide the pay range for a “particular and specific employment position” to an employee holding that position or an applicant for the position.
As a reminder: Pay transparency laws also went into effect on January 1, 2025 affecting employers in Illinois and Minnesota.
Biometric Data Collection
Colorado: Beginning July 1, 2025, the Colorado Privacy Act will require employers to obtain consent from employees or applicants before collecting or processing their biometric data. Biometric identifiers include, among other things, fingerprints, voiceprints, eye retina or iris scans or records, facial maps, facial geometry or facial templates, or “other unique biological, physical, or behavioral patterns or characteristics,” but do not include digital or physical photographs or audio or voice recordings or related data unless used for identification purposes.
Restrictive Covenants
Wyoming: With the introduction of Wyo. Stat. § 1-23-108, Wyoming has banned most non-compete agreements signed on or after July 1, 2025, with several key exceptions. Although the majority of new non-compete covenants will be unenforceable, the state statute permits employers to continue using non-compete agreements with “executive and management personnel” and their professional staff, phrases that are undefined by the law. Noncompetes also remain valid in the sale-of-business context and when necessary to protect trade secrets. Employers may also require employees to repay training, education, or relocation costs if they leave within four years of employment, but on a graduated schedule: up to 100% if employment lasts fewer than two years; up to 66% for employment lasting between two and three years; and up to 33% for employment between three and four years. Non-compete agreements with physicians are prohibited outright. Agreements signed before July 1, 2025 are not affected by the law, so employers should consider their options before the law takes effect.
Cyber Risks: Is Your Business Exposed?
In today’s interconnected digital landscape, cybersecurity has emerged as a critical concern for businesses across all sectors. The increasing frequency and sophistication of cyber threats necessitates a comprehensive understanding of both legal and financial implications associated with cyber risks. This article delves into the essential legal and financial terms related to cybersecurity to highlight their significance and provide insights into best practices for mitigating risk.
Defining ‘Cyber Risk’
Cyber risk refers to the potential for financial loss, disruption, or damage to an organization’s reputation due to failures in its information technology systems. These risks can arise from various sources, including cyberattacks, data breaches, system failures, or unauthorized access to sensitive information. Understanding cyber risk involves assessing both the impact a cyber incident can cause and the probability of such an incident occurring.
Sean Griffin, partner at Longman & Van Glack, underscores the legal liabilities of data breaches, explaining that failure to implement proper cybersecurity controls could expose companies to litigation and government enforcement actions.
The Role of Risk Management
Effective risk management is crucial in identifying, assessing, and mitigating cyber risks. Organizations typically adopt one or more of the following strategies:
Risk Acceptance: Acknowledging the risk and choosing to accept it without implementing additional controls, often because the cost of mitigation exceeds the potential loss.
Risk Avoidance: Eliminating activities that introduce risk, thereby avoiding the potential threat altogether.
Risk Mitigation: Implementing measures to reduce the likelihood or impact of a cyber incident, such as deploying security technologies or enhancing employee training.
Risk Transfer: Shifting the financial consequences of a risk to a third party, typically through purchasing cyber insurance policies.
Legal Frameworks and Regulations
Navigating the complex landscape of cybersecurity requires adherence to various legal frameworks and regulations designed to protect data and ensure organizational accountability. The legal framework governing the mitigation and prevention of cyber-risks includes federal and state regulations like the following:
Federal Trade Commission (FTC) Safeguards Rule
The FTC’s Safeguards Rule mandates that financial institutions develop, implement, and maintain comprehensive information security programs to protect customer information. The rule was updated to include more specific requirements, such as designating a qualified individual to oversee cybersecurity compliance, conducting regular risk assessments, and implementing access controls and encryption. Notably, the definition of ‘financial institutions’ has been expanded to encompass a broader range of companies, increasing the scope of entities required to comply.
New York Department of Financial Services (NYDFS) Cybersecurity Regulation
The NYDFS Cybersecurity Regulation (23 NYCRR Part 500) establishes cybersecurity requirements for financial services companies operating in New York. The regulation requires entities to implement a cybersecurity program, adopt a written policy, designate a Chief Information Security Officer (CISO), and comply with various technical controls. Recent amendments have introduced more stringent requirements, such as enhanced governance obligations and expanded definitions of key terms, reflecting the evolving nature of cyber threats.
Securities and Exchange Commission (SEC) Cybersecurity Disclosure Rules
The SEC has implemented rules requiring publicly traded companies to disclose material cybersecurity incidents within four business days of determining their materiality. This mandate emphasizes the importance of transparency and timely communication with investors regarding cyber risks and incidents. The disclosure should include the nature, scope, and potential impact of the incident on the company’s operations and financial condition.
Jonathan Friedland of Much Shelist emphasizes the importance of transparency in cybersecurity. He highlights that businesses must disclose cyber risks and incidents promptly to avoid regulatory scrutiny and loss of trust.
Financial Implications of Cyber Risks
Cyber incidents can have profound financial consequences for businesses, including direct costs such as regulatory fines, legal fees, and remediation expenses, as well as indirect costs like reputational damage and loss of customer trust.
Key financial considerations include:
Cyber Insurance
To mitigate potential financial losses from cyber incidents, organizations often invest in cyber insurance policies. These policies can cover various expenses, including data breach notifications, legal fees, and business interruption losses. However, it’s essential for organizations to thoroughly understand the terms, coverage limits, and exclusions of their policies to ensure adequate protection.
Regulatory Fines and Penalties
Non-compliance with cybersecurity regulations can result in substantial fines and penalties. For instance, under the updated FTC Safeguards Rule, financial institutions that fail to implement required security measures may face enforcement actions. Similarly, the NYDFS Cybersecurity Regulation imposes penalties on entities that do not adhere to its stringent requirements.
Best Practices for Cybersecurity
To strengthen cybersecurity defenses, organizations should adopt the following best practices:
Implement a Robust Incident Response Plan: The term, ‘Incident Response Plan’ (IRP), refers to a documented strategy outlining the procedures an organization will follow in the event of a cybersecurity incident. It typically includes steps for detection, containment, eradication, recovery, and post-incident analysis to mitigate damage and prevent future occurrences. Alex Sharpe of Sharpe Consulting suggests continuous monitoring and real-time threat detection rather than a solely reactive approach to cyber incidents.
Conduct Regular Security Audits and Risk Assessments: Identifying vulnerabilities proactively helps in mitigating potential threats before they are exploited.
Enhance Employee Training and Awareness Programs: Employees are the first line of defense against cyber threats; regular training can reduce human error and increase vigilance.
Encrypt Sensitive Data: Data encryption can protect critical information even if it is intercepted or stolen.
Utilize Multi-Factor Authentication (MFA): Enforcing MFA across all systems can significantly reduce the risk of unauthorized access.
Monitor and Respond to Threat Intelligence: Keeping up-to-date with emerging threats and attack trends allows organizations to adjust their defenses accordingly.
Conclusion
As cyber threats continue to evolve, businesses must remain vigilant in safeguarding their digital assets. Implementing proactive security measures, adhering to regulatory requirements, and fostering a culture of cybersecurity awareness are crucial for mitigating risk.
Cybersecurity is not merely an IT issue but a fundamental business imperative that impacts legal, financial, and operational stability. By staying informed, leveraging best practices, and continuously updating security protocols, organizations can enhance their resilience against cyber threats and protect their most valuable assets — data, reputation, and customer trust.
To learn more about this topic, view Corporate Risk Management / Cyber Risks: Every Business is Exposed Whether You Know it or Not. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about cybersecurity.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Executive Order Overhauls Foreign Military Sales: Building on Momentum for Reform
On April 9, 2025, President Trump issued an Executive Order titled “Reforming Foreign Defense Sales to Improve Speed and Accountability.” This directive is the first Executive Order ever issued by a U.S. President on the foreign military sales (FMS) process and sets in motion a substantial modernization. The Order aims to strengthen U.S. global competitiveness, advance strategic objectives, and ensure that trusted allies and partners receive American defense systems more swiftly and reliably.
While the Executive Order is historic, it builds on previously proposed reforms from Congress and the Department of Defense (DoD). In 2024, the House Foreign Affairs Committee published a “Foreign Military Sales Tiger Task Force Report,” which offered legislative reforms to the FMS process (Foreign Affairs FMS Report). A 2023 “Tiger Team” report identified chronic inefficiencies in the U.S. arms sales system and laid out comprehensive recommendations for reform (DoD Tiger Team Report). Though not explicitly cited, many elements of the Executive Order reflect the Congressional and DoD findings.
White House Fact Sheet Highlights
According to the White House, the Executive Order will:
Improve accountability and transparency across the foreign defense sales system to ensure predictable and reliable delivery of U.S. products in support of foreign policy objectives.
Reduce regulatory friction in the development and execution of arms transfers to ensure sales advance national interests.
Promote U.S. competitiveness, revitalize the defense industrial base, and deliver cost efficiencies for both the United States and its partners.
Prioritize strategic partnerships by identifying a list of key countries and defense articles that will receive expedited consideration.
Institutionalize exportability early in the acquisition cycle to speed up approvals while protecting sensitive technologies.
Create a digital tracking and accountability system that allows real-time visibility into the status of FMS and Direct Commercial Sales (DCS) approvals.
Streamline and consolidate the approval process to reduce delays, facilitate joint operations, and improve burden-sharing with allies.
Alignment with Tiger Team and Industry Reform Demands
The Executive Order responds to long-standing frustrations voiced by both industry stakeholders and foreign governments regarding the slow, opaque, and risk-averse nature of the current U.S. arms transfer process. In particular, it echoes recommendations made by the DoD 2023 Tiger Team, including:
Accelerating acquisition and release timelines for key technologies;
Focusing FMS resources on the most strategically significant partners;
Enhancing workforce expertise and coordination across agencies.
Together, these reforms aim to bolster U.S. credibility as a security partner while helping trusted allies access advanced capabilities amid growing regional threats.
Congressional Support and Competitive Implications
Senator Jim Risch (R-Idaho), Chairman of the Senate Foreign Relations Committee, welcomed the Executive Order, stating that “our current system suffocates our ability to support our partners” and praising the new directive for its potential to “unclog the system” and push back against Russian and Chinese influence (Risch Statement).
Industry voices echoed this sentiment. As reported by Breaking Defense, defense firms see the order as a major opportunity to improve predictability, increase deal flow, and adapt to a changing security landscape in which U.S. competitors often outpace Washington on speed and flexibility (Breaking Defense).
Strategic Takeaways
For Defense Contractors: The EO signals that the U.S. government is serious about streamlining sales pathways. Firms should prepare to engage early on exportability design and prioritize systems likely to appear on the upcoming “priority end-item” list.
For Foreign Partners: Allied nations should expect greater clarity and speed in the sales process. Those with longstanding requests may see movement in the near term as agencies implement new tracking and prioritization tools.
For Policymakers: The order raises important policy tradeoffs between speed and oversight, especially in transactions involving sensitive technologies or countries in volatile regions.
What Comes Next?
Within the next 60–120 days, the Departments of State and Defense are required to deliver:
A list of priority defense partners;
A list of priority end-items for expedited review;
A plan to integrate exportability into the defense acquisition cycle;
A prototype for a unified FMS and DCS digital tracking system.
Stakeholders should actively monitor implementation guidance and identify ways to influence agency priorities, program selections, and regulatory interpretations.
Navigating Ethical and Legal Complexities in Insider Lease Agreements in the Context of Bankruptcy
Insider lease agreements, where a property owner leases assets to a related entity, are prevalent in real estate-based businesses. While these arrangements can offer tax advantages and liability protections, they also present intricate ethical and legal challenges, particularly in bankruptcy scenarios. This article delves into the nuances of insider lease agreements in the context of bankruptcy exploring ethical considerations, and providing best practices for attorneys and business owners.
Definition of ‘Insider’
Bankruptcy Code Section 101(31) defines an ‘insider’ to include relatives, general partners, and directors or officers of the debtor. Understanding this designation is critical, as insider transactions face heightened scrutiny and potential challenges from creditors and trustees.
David Levy, managing director at Keen-Summit Capital Partners, points out that courts apply various non-statutory tests to determine whether a party is an ‘insider’ in a lease agreement. He explains that factors like control, closeness of relationships, and financial influence are key indicators that could lead to heightened scrutiny in bankruptcy cases.
Understanding Insider Lease Agreements
An insider lease agreement occurs when a business owner leases property to a related entity, such as a subsidiary or an entity under common ownership. This structure can be advantageous, allowing for tax deductions and asset protection.
However, it can also create conflicts of interest, especially if the lease terms are not established at fair market value or if the arrangement favors insiders over creditors. Matt Christensen, Managing Partner at Johnson May, notes that insider lease agreements can significantly impact bankruptcy avoidance actions.
True Lease vs. Disguised Financing
It’s crucial to distinguish between a ‘true lease’ and a ‘disguised financing arrangement.’ A true lease involves the lessor retaining ownership of the asset, with the lessee having the right to use it for a specified period. In contrast, a disguised financing arrangement, though labeled as a lease, functions as a secured transaction where the lessee effectively owns the asset and the ‘lease’ serves as collateral for a loan.
Courts scrutinize the substance over form to determine the true nature of the agreement. For instance, a court might recharacterize lease agreements as security agreements based on factors like the lessee’s lack of termination rights and nominal purchase options.
Jonathan Aberman, partner at Troutman Pepper Locke, stresses that courts review insider transactions more rigorously in bankruptcy cases. He advises that ensuring fair market value and independent oversight in lease agreements is crucial to avoiding claims of self-dealing.
Fair Market Value (FMV) vs. Residual Value
Fair Market Value refers to the price at which an asset would change hands between a willing buyer and seller, neither under compulsion and where both have reasonable knowledge of relevant facts. Ensuring that lease terms reflect FMV is vital to prevent allegations of preferential treatment or fraudulent conveyance, especially in insider transactions.
Residual value is the estimated worth of a leased asset at the end of the lease term. Lessees may have options to purchase the asset at this value. Accurate estimation is essential to avoid disputes and ensure compliance with tax regulations.
Lease Provisions
Most leases have certain provisions in place to ensure that the lessor is protected in the event of bankruptcy or other unforeseen circumstances. Below are some common provisions and clauses included in leases:
Hell-or-High-Water Clauses: This clause stipulates that the lessee’s obligation to make payments is absolute and unconditional, regardless of any difficulties encountered. Such provisions are common in equipment leases to protect the lessor’s revenue stream.
Force Majeure Clauses: A Force Majeure Clause excuses parties from performance obligations due to extraordinary events beyond their control, such as natural disasters or government actions. The applicability of this clause depends on its specific wording and the unforeseen nature of the event. For example, during the COVID-19 pandemic, courts examined whether government-imposed restrictions triggered force majeure clauses in lease agreements.
Purchase Options: A Purchase Option grants the lessee the right to buy the leased asset at the end of the lease term, often at FMV or a predetermined price. The specifics of this option can influence the lease’s classification for accounting and tax purposes.
Maintenance and Return Conditions: Lease agreements typically require the lessee to maintain the asset in good condition and specify the state in which it must be returned. These terms protect the lessor’s residual interest and ensure the asset’s value is preserved.
Indemnity Provisions: Indemnity clauses obligate one party to compensate the other for certain losses or damages. In leases, lessees often indemnify lessors against liabilities arising from the asset’s use, mitigating the lessor’s risk exposure.
Ethical Considerations
Insider lease agreements raise myriad ethical considerations for the parties involved.
Conflicts of Interest
Insider lease agreements inherently risk conflicts of interest. Attorneys must ensure that such arrangements are transparent and that all parties provide informed consent. ABA Model Rule 1.7 addresses conflicts of interest, emphasizing the necessity for clear client relationships and the avoidance of representing parties with opposing interests within the same transaction.
Duty of Candor
Attorneys also have an ethical obligation to be truthful in dealings with tribunals and opposing parties. This duty is paramount when presenting insider lease agreements in legal proceedings, ensuring that all material facts are disclosed. ABA Model Rules 3.3 and 3.4 outline these responsibilities.
Transparency and Fair Dealing
Full disclosure of insider relationships and lease terms is essential to prevent legal disputes and uphold ethical standards. This transparency ensures that all parties, including creditors, are aware of potential conflicts and can assess the fairness of the transaction.
Samantha Ruben of Dentons’ Restructuring Insolvency and Bankruptcy practice points out that ethical considerations in insider leases can arise when fiduciaries prioritize personal interests over the business entity. She explains that in a distressed situation, these transactions may face higher levels of scrutiny and disclosure from the get-go can be key.
Conclusion
Insider lease agreements, while beneficial in certain circumstances, must be handled with care to avoid ethical and legal pitfalls. By adhering to best practices, ensuring transparency, and complying with legal standards, attorneys and business professionals can mitigate risks and uphold ethical integrity in real estate transactions.
To learn more about this topic view Ethical Issues In Real Estate-Based Bankruptcies / Insider Lease Agreements. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about real estate-focused bankruptcy cases.
This article was originally published on here.
©2025. DailyDACTM. This article is subject to the disclaimers found here.
An Ounce of Prevention: Policies, Procedures, and Proactivity in Employment
In the realm of employment, an intentional approach to crafting policies and procedures serves as a cornerstone for fostering a fair, compliant, and productive workplace.
Implementing clear policies, structured procedures, and proactive management strategies not only cultivates a positive work environment, but also mitigates potential legal and financial risks. An employee handbook is one important element of this strategy and a vital document that delineates company policies, procedures, and expectations.
The Importance of a Comprehensive Employee Handbook
A well-crafted, up-to-date employee handbook helps establish workplace culture, promote consistency, and reduce legal risk, while also serving as a day-to-day reference point for employees and management. Legally, a handbook can assist employers in defending against claims by demonstrating the existence of clear policies.
Amit Bindra of The Prinz Law Firm emphasizes that companies like Netflix have utilized their handbooks to define corporate culture and values, making them instrumental tools for recruitment and retention.
A Tailored Approach
Employers must ensure that every policy aligns with applicable local, state, and federal laws. Max Barack, partner with the Garfinkel Group, emphasizes that businesses operating in multiple jurisdictions need to account for differences in laws at the city, county, state, and federal levels. For example, wage and leave policies can vary significantly between the City of Chicago, Cook County, and the rest of the state of Illinois.
Helen Bloch, who specializes in business and employment law, points out that a poorly written handbook can do more harm than good. For example, including policies that don’t apply to a business, such as Family and Medical Leave Act (FMLA) provisions for a company with fewer than 50 employees, can create unintended legal obligations.
Getting Started
Key Legal and Financial Terms Explained
Understanding key legal and financial terms in employment is essential prior to drafting any policies or procedures to be included in an employee handbook. A few important terms are explained below:
At-Will Employment: In the United States, most employment relationships are ‘at-will,’ meaning either the employer or the employee can terminate the relationship at any time, for any reason, as long as it’s not illegal (e.g., based on discrimination). However, some states have exceptions to this doctrine.
Family and Medical Leave Act (FMLA): A federal law that provides eligible employees with up to 12 weeks of unpaid leave per year for certain family and medical reasons, with continuation of group health insurance coverage. Employers with 50 or more employees are generally subject to FMLA.
Non-Compete Agreements: A contractual clause that restricts an employee from working with competitors or starting a similar business within a specified time frame and geographic area after leaving a company. Some states, such as California, have strict limitations on non-compete agreements.
Essential Policies To Address
The following policy areas should be top of mind for employers as they begin to draft policies and procedures to be included in an employee handbook:
Leave Policies: Specify how employees request time off, who they report to, and any legally required sick leave provisions.
Expense Reimbursement: Outline procedures for submitting and approving business-related expenses.
Progressive Discipline: Establish disciplinary guidelines while maintaining flexibility to address individual situations appropriately.
Anti-Harassment and Discrimination Policies: Clearly define protected classes and establish reporting procedures.
Providing employees with a structured way to report concerns — especially serious ones like discrimination or harassment — is critical. A well-documented complaint process can also help protect businesses in the event of a legal claim. An anti-retaliation policy should accompany any open-door policy. Employees should feel safe bringing up legitimate concerns without fear of repercussions.
Max Barack notes that some employers worry an open-door policy could invite frivolous complaints but stresses that the absence of a clear reporting process often exacerbates legal exposure. A structured process ensures that employees know where to turn and that complaints are handled consistently.
Including independent contractors in an employment handbook requires caution. Misclassifying workers as contractors when they should be employees can lead to significant legal trouble. Instead of attempting to define classification on their own, employers should work with an attorney to ensure proper classification based on federal and state guidelines.
Charles Krugel warns that many businesses inadvertently misclassify workers, exposing themselves to costly litigation. An employee handbook that is not explicit about who and what it applies to could risk inadvertently subjecting independent contractors to employee policies.
Clarity Over Legalese
Clear and concise policies are the most effective. Employees need to understand the rules, and excessive legalese only creates confusion. Policies should be drafted in plain English so that everyone in the company can easily understand them.
Amit Bindra recounts a case where a corporate client questioned the validity of a contract simply because it was too easy to understand. The reality, he said, is that clear and concise language is more enforceable and practical in real-world applications.
For businesses with non-English-speaking employees, translating the handbook into several languages can be an essential part of this process. Some jurisdictions even require certain policies to be provided in multiple languages.
The Role of Training in Reinforcing Policies
A handbook is only effective if employees know what’s in it. Regular training sessions to reinforce policies are crucial. Ideally, training should be in person, but if that’s not possible, interactive online training can be a good alternative.
Max Barack emphasizes that companies should actively educate their employees, and not rely solely on written policies, to ensure they follow all policies and procedures. Training helps ensure compliance and demonstrates that the company takes its policies seriously.
Given that employment laws are dynamic, employers should provide refresher courses annually, especially when laws or policies change, and the handbook has been updated accordingly.
Final Thoughts
Keeping policies clear, compliant, and accessible will help businesses stay ahead of the curve in an ever-changing employment landscape. Having a well-structured employee handbook is an essential part of running a successful business.
However, simply having a handbook isn’t enough — it must be kept up to date, written in plain English, and properly communicated to employees. By taking an intentional approach to crafting their policies and procedures and formalizing them in an employee handbook, businesses can avoid costly legal pitfalls and create a more positive and productive workplace.
To learn more about this topic, view the webinar An Ounce of Prevention: Policies, Procedures and Proactivity. Any quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about crucial employment considerations.
This article was originally published here.
©2025. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
U.S. Tariffs on Steel and Aluminum: Navigating the Changing Landscape in 2025
The United States is actively using tariffs to achieve its economic and political goals. Whether or not you agree with this policy approach, as a participant in the global economy you had better pay careful attention to the changing landscape and how it affects your business. Producers, suppliers, and even consumers of steel and aluminum, which are essential elements of many commonly purchased items, are in no different of a position.
Here is a brief history of recent executive actions impacting steel and aluminum imports into the United States:
In 2018, the Trump administration imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports for most countries to combat trade imbalances. Argentina, Australia, Canada, and Mexico were exempted, though Argentina was limited to a pre-defined quota on imports not subject to the tariffs.
Between 2020 and 2023, the Biden administration relaxed the tariffs on steel and aluminum imports for certain countries (including Japan, the United Kingdom, Ukraine, and, for steel and aluminum articles, the European Union) by imposing a tiered quota system in which a stipulated quantity of goods could be imported at lower rates. Conversely, the Biden administration imposed higher tariff rates on products from Russia, and then in July 2024, additional melt and pour requirements for imports of steel from Mexico.
On March 12, 2025, President Trump reinstated the full 25% tariff on steel imports on all countries and raised tariffs on aluminum imports to 25% for all countries. That executive order eliminated the prior country-specific exemptions, thereby threatening a profound impact for participants in international trade, particularly those in manufacturing, construction, oil and gas, and other sectors that rely on steel and aluminum products.
On April 10, 2025, global markets let out a collective sigh as Trump announced a 90-day pause on most U.S. tariffs. Chinese products were specifically excluded from the temporary stay and a baseline import tariff of 10% was imposed for most countries. There were a few other notable exceptions to the 90-day pause (more on that below).
What are the implications for your business, and what should you do?
The widespread and temporary halt on reciprocal tariffs for foreign importers on most goods will expire on July 9, 2025. Two noteworthy exclusions from temporary pause are tariffs on steel and aluminum imports and that is not expected to change anytime soon. Tariff rates for those two industries remain at 25%, except for China, which is now at 125%. It is recommended that importers of steel and aluminum into the U.S. consider taking one or more of the following actions:
Evaluate Contract Risk – The terms of your company’s existing agreements may provide relief from the impact of tariffs. At a minimum, you should understand how the new trade laws or governmental actions allocate risk among the contract parties and your relative rights when new tariffs are imposed. Bradley’s Construction Practice Group recently issued a blog post on tariff-related requests for equitable adjustments in U.S. government contracts. Rights to renegotiate pricing are also sometimes addressed in private party agreements. We advise that you review your existing price adjustment provisions, surcharging clauses, force majeure clauses, termination clauses, and other contractual terms addressing legal excuses for performance. Private companies should also consider whether to add tariff-specific contractual mitigation measures before signing their next service or supply agreement and whether to modify their existing terms and conditions related to the sale of steel or aluminum products.
Consider Changing Your Production Processes – Try to take advantage of the specific tariff exclusion for steel and aluminum derivative articles. The key is that the derivative articles of steel must be melted and poured or, if aluminum, must be smelted and cast in the U.S. prior to their processing in a third country.
Consider Any Benefits Under Trump’s “America First Investment Policy” – Under Trump’s America First Investment Policy, the plan is to create a “fast-track” process that encourages large investments (over $1 billion) from U.S. partners, while imposing conditions to ensure that investors do not collaborate with specifically identified foreign nations, such as the People’s Republic of China. While the details of the investment policy are still being formulated, the long-term aim is for companies that are not perceived as working against the economic security of the United States to benefit from quicker approvals and clearer regulatory processes, leading to faster business growth and a more predictable and favorable investment environment. While this does not directly reduce the impact of steel and aluminum tariffs, now, more than ever, may be an opportune time to invest in the construction of that large Texas steel mill that your board of directors has long considered.
Consider Raising Contract Prices – While often a last resort for most businesses, sometimes the only way to deal with higher production costs is to share those tariff-related costs with your customers in the form of increased prices. This is especially true for smaller businesses. Timing and proper notice are critical when changing prices. Ideally, notice of increased prices should be provided within 30 days of the new tariffs going into effect.
Institutions’ Title IX Compliance Under the Microscope: DOJ, ED Form Special Investigations Team to Enforce Gender Ideology EOs
Takeaway
The DOJ and ED are allocating resources to increase enforcement of Title IX concerning participation of transgender athletes, the use of intimate spaces, and “gender ideology” generally.
Article
Institutions should carefully review their policies and practices now that the Department of Justice (DOJ) and Department of Education (ED) have recently formed a special investigations team to increase and prioritize enforcement of the administration’s position under Title IX of the Education Amendments of 1972.
In February, President Donald Trump issued two executive orders on the administration’s position on Title IX’s application to gender identity and transgender students: “Keeping Men Out of Women’s Sports” and “Defending Women from Gender Ideology Extremism.”
On April 4, 2025, the DOJ and ED announced the creation of a “Title IX Special Investigations Team” for the purpose of “ensur[ing] timely, consistent resolutions to protect students, and especially female athletes, from the pernicious effects of gender ideology in school programs and activities.”
The Special Investigations Team includes:
ED Office for Civil Rights investigators and attorneys
DOJ Civil Rights Division attorneys
ED Office of General Counsel attorneys
ED Student Privacy Policy staff and an FSA Enforcement investigator
The Team appears to be a reallocation of current government resources rather than any addition of new positions or personnel.
What does this mean for institutions subject to Title IX?
The DOJ and ED are allocating resources to bolster enforcement of Title IX concerning participation of transgender athletes, the use of intimate spaces, and “gender ideology” generally. Complaints about transgender students participating in athletics or using intimate spaces based on their gender identity, as opposed to their biological sex at birth, likely will be prioritized for enforcement action. Policies and practices relating to pronouns and name changes based on gender identity also will be subject to increased scrutiny.
What should institutions do now?
Institutions subject to Title IX should review their policies and practices to ensure compliance with current law, review their Title IX training materials, and consider the benefits of providing employees with additional training.
April Welcomes More Flexible Co-Investment Exemptive Relief Under the Investment Company Act of 1940
On April 3, the US Securities and Exchange Commission (SEC) approved an exemptive application1 that allows for a more flexible co-investment transaction approval process. This new relief simplifies the process followed by investment managers under prior co-investment exemptive orders to approve the participation of business development companies (BDCs) and/or registered closed-end funds (together with BDCs, Regulated Funds) when making negotiated2 co-investments together with affiliated funds, where such joint transactions would otherwise be prohibited by the Investment Company Act of 1940, as amended (the 1940 Act), and the rules and regulations thereunder. Although the new exemptive relief is still subject to certain conditions, compared to previous co-investment exemptive orders, the new exemptive relief provides the following benefits.
Subject to the implementation of certain policies and procedures, the board of directors (the Board) of a Regulated Fund does not need to approve co-investment transactions in advance except for the transactions described in the bullet below.
A majority vote of the independent directors of the Regulated Fund (a Required Majority) will only be necessary to approve a negotiated co-investment transaction if (i) the Regulated Fund is investing into an issuer where an Affiliated Entity3 has an existing interest in such issuer, or (ii) the transaction is a non-pro rata follow-on investment or a non-pro rata disposition of an investment.
Previously, Regulated Funds were prohibited from participating in a co-investment transaction if certain Affiliated Entities had an existing investment in the subject issuer.
Moreover, the previous form of relief did not permit a Regulated Fund to participate in a follow-on investment, unless (i) the Regulated Fund participated in the initial co-investment and continues to hold an investment in the subject issuer or (ii) Affiliated Entities had no existing investment in the subject issuer. With this restriction now removed, Regulated Funds may participate in follow-on investments with their Affiliated Entities even if the Regulated Fund has no existing investment in the subject issuer.
Joint Ventures,4 funds that are sub-advised by a sponsor without requiring the adviser and sub-adviser to be affiliated, and entities relying on any provision of Section 3(c) under the 1940 Act, are now able to participate in negotiated co-investment transactions on the same terms as Regulated Funds and Affiliated Entities. Previous co-investment relief generally did not allow these types of entities (other than entities relying on the exemptions in Sections 3(c)(1), 3(c)(5)(C), and 3(c)(7) of the 1940 Act) to participate in negotiated co-investments in reliance on the exemptive relief.
Investment managers now have more discretion with respect to their investment allocation process under this new relief, so long as investment managers adopt and implement co-investment policies and procedures that are reasonably designed to prevent the Regulated Fund from being disadvantaged in the co-investment program. Prior to participation in co-investment transactions, the Regulated Fund’s Board needs to approve the policies and procedures and then must oversee the Regulated Fund’s participation in the co-investment program in the exercise of the Boards’ reasonable judgment.
Relief Conditions
In addition to the benefits described above, set forth below is a summary of the conditions of the new co-investment exemptive relief.
Regulated Funds and Affiliated Entities will still be required to acquire or dispose of investments generally on the same terms.5 If the transaction is a non-pro rata follow-on investment or non-pro rata disposition, then Required Majority approval will be necessary.
As indicated above, for a Regulated Fund to invest in an issuer in which such Regulated Fund is not an existing investor, but an Affiliated Entity is an existing investor, a Required Majority must approve such Regulated Fund’s participation in the transaction.
Any expenses associated with acquiring, holding or disposing of securities acquired in a co-investment transaction must be shared among the participants in proportion to the relative amounts of securities being acquired, held or disposed.
Affiliated Entities must continue to share transaction fees (including break-up, structuring, monitoring or commitment fees but excluding broker’s fees contemplated by Sections 17(e) or 57(k) of the 1940 Act, as applicable) with Regulated Funds and other Affiliated Entities participating in a co-investment transaction pro rata based on the amount invested or committed. No Affiliated Entity can accept any other compensation in connection with a co-investment transaction.
As discussed above, investment managers must adopt co-investment policies designed to prevent the Regulated Fund from being disadvantaged in the co-investment program. The Regulated Fund’s Board then must approve the policies and oversee the Regulated Fund’s participation in the co-investment program.
Prior to any disposition by an Affiliated Entity of an investment acquired in a co-investment transaction, the adviser to a Regulated Fund that participated in the co-investment transaction will be notified, and the Regulated Fund will be given the opportunity to participate pro rata based on the proportion of its holdings relative to the other Affiliated Entities participating. In a co-investment transaction, prior to any non-pro rata disposition of an investment by a Regulated Fund or if a disposition is not a sale of a Tradable Security,6 the Required Majority must approve the disposition.
At least quarterly, the Regulated Fund’s adviser and chief compliance officer (“CCO”) will be required to provide reports to the Regulated Fund’s Board regarding the Regulated Fund’s participation and activity in co-investment transactions and a summary of deemed significant matters that arose during the period related to the implementation of the adviser’s co-investment policies and procedures and the Regulated Fund’s policies and procedures.
Each year, the adviser and CCO must provide information requested by the Regulated Fund’s Board related to the Regulated Fund’s participation in the co-investment program and any material changes in the Affiliated Entities’ participation in the co-investment program, including changes to the Affiliated Entities’ co-investment policies.
The adviser and the CCO must also notify the Regulated Fund’s Board of any compliance matters related to the Regulated Fund’s participation in the co-investment program that the CCO considers to be material.
All information presented to the Regulated Fund’s Board must be safeguarded for the life of the Regulated Fund and two years after, which will be subject to SEC examination.
Similar to the applications and orders for the new multi-share class exemptive relief, as highlighted in Katten’s advisory published last week, investment managers will need to individually apply for and obtain the new co-investment exemptive relief.
1 FS Credit Opportunities Corp., et al, SEC Rel. No. IC-35520 (April 3, 2025). Unless there is a request for a hearing, the approval will become effective after a 25-day notice period.
2 The applications did not seek relief for transactions effected consistent with staff no action positions (See, e.g., Massachusetts Mutual Life Insurance Co. (pub. avail. June 7, 2000), Massachusetts Mutual Life Insurance Co. (pub. avail. July 28, 2000) and SMC Capital, Inc. (pub. avail. Sept. 5, 1995)). In general, these positions allow co-investing with an affiliate if the only term of the investment that is negotiated is price.
3 “Affiliated Entity” means an entity not controlled by a Regulated Fund that intends to engage in co-investment transactions and that is (a) with respect to a Regulated Fund, another Regulated Fund; (b) an adviser to the Regulated Fund or its affiliates (other than an open-end investment company registered under the 1940 Act), and any direct or indirect, wholly- or majority-owned subsidiary of an adviser to the Regulated Fund or its affiliates (other than of an open-end investment company registered under the 1940 Act), that is participating in a co-investment transaction in a principal capacity; or (c) any entity that would be an investment company but for Section 3(c) of the 1940 Act or Rule 3a-7 thereunder and whose investment adviser is an adviser to the Regulated Fund.
4 “Joint Venture” means an unconsolidated joint venture subsidiary of a Regulated Fund, in which all portfolio decisions, and generally all other decisions in respect of such joint venture, must be approved by an investment committee consisting of representatives of the Regulated Fund and the unaffiliated joint venture partner (with approval from a representative of each required).
5 “Same terms” means the same class of securities, at the same time, for the same price and with the same conversion, financial reporting and registration rights, and with substantially the same other terms.
6 “Tradable Security” means a security which trades: (i) on a national securities exchange (or designated offshore securities market as defined in Rule 902(b) under the Securities Act of 1933, as amended) and (ii) with sufficient volume and liquidity (findings which are to be made in good faith and documented by the advisers to any Regulated Fund) to allow each Regulated Fund to dispose of its entire remaining position within 30 days at approximately the price at which the Regulated Fund has valued the investment.
Buying Assets in Bankruptcy: Opportunities, Risks, and Strategies
Introduction
Acquiring assets from a bankrupt company presents unique opportunities for investors, business owners, and legal professionals. Understanding the intricacies of a Section 363 sale process, the role of a stalking horse bidder, and the dynamics of bankruptcy sales is crucial for navigating these complex transactions successfully.
What Makes Bankruptcy Asset Sales Unique?
Section 363 of the US Bankruptcy Code allows a debtor (the company or person in bankruptcy) to sell assets outside the ordinary course of business, typically through a court-approved auction process. This mechanism enables the sale of assets “free and clear” of existing liens, claims, and encumbrances, providing buyers with a clean title.
The section 363 sale process is a public auction. The debtor must market the assets and sell them through a court-approved auction process.
This process benefits buyers by offering:
Expedited Transactions: Bankruptcy courts often prioritize swift asset sales to maximize value and reduce administrative expenses.
Transparency: The auction process’s public nature ensures that all interested parties have access to information, promoting fair competition.
Legal Protections: Court approval of the sale minimizes the risk of future disputes over asset ownership.
However, potential buyers must conduct thorough due diligence to understand the specific terms and any possible exceptions that might affect the sale.
Benefits of Buying Assets in Bankruptcy
Purchasing assets through a bankruptcy sale can offer several advantages:
Discounted Asset Prices: Assets are often sold at reduced prices due to the distressed nature of the sale.
Acquisition Free of Liens: Buyers can acquire assets free and clear of most prior claims. James Sullivan, partner at Seyfarth Shaw, notes that assets bought out of bankruptcy are often priced lower than when purchased through a typical M&A transaction and are acquired free and clear of virtually all liens, claims, and interests burdening the assets.
Court-Supervised Process: The involvement of the bankruptcy court provides a structured environment, reducing the risk of undisclosed liabilities.
Opportunity for Strategic Expansion: Buyers can acquire valuable assets, intellectual property, or business units that align with their strategic goals.
The Role of the Stalking Horse Bidder
A stalking horse bidder is an initial bidder chosen by the debtor to set the baseline bid for the assets. This arrangement establishes a minimum price, encouraging other potential buyers to participate in the auction. The stalking horse bidder often negotiates certain protections, such as break-up fees, to compensate for the risks associated with being the initial bidder.
Often in section 363 sales, there will be an initial ‘stalking horse’ bidder that will perform the initial due diligence on the assets to be sold and enter into an asset purchase agreement with the debtor for the sale of the property, subject to the possibility of higher and better offers being accepted at the auction.
Break-up fees are payments made to the stalking horse bidder if another bidder wins the auction. These fees compensate the initial bidder for the time and resources invested in setting the floor price. The debtor and the stalking horse bidder negotiate these bid procedures and may seek and receive input from others, including secured creditors. Richard Corbi of Corbi Law notes that a bidder might not win the assets despite all their upfront effort if the auction gets competitive.
The Auction Process & Competitive Bidding
The auction process in a bankruptcy sale is designed to maximize the value of the debtor’s assets. Key steps include:
Bid Procedures Approval: The debtor proposes bidding procedures, which must be approved by the bankruptcy court. These procedures outline the requirements for potential bidders and the rules governing the auction.
Marketing the Assets: The debtor markets the assets to attract potential buyers, providing necessary information to facilitate due diligence.
Submission of Qualified Bids: Interested parties submit bids that comply with the approved procedures by a specified deadline.
Auction Conducted: If multiple qualified bids are received, an auction is held where bidders can increase their offers competitively.
Selection of Winning Bid: The debtor, in consultation with creditors and subject to court approval, selects the highest and best offer, considering factors beyond just the purchase price.
Court Approval: A sale hearing is conducted where the court reviews the process and approves the sale to the winning bidder.
Closing the Sale: Following court approval, the transaction is finalized, and the assets are transferred to the buyer.
It’s important to note that the ‘highest and best’ offer isn’t solely determined by the monetary value. Cliff Katz explains that other considerations include the ability to close promptly, contingencies, and the impact on stakeholders.
Risks and Challenges of Bankruptcy Sales
While bankruptcy asset purchases offer attractive opportunities, they come with inherent risks:
Due Diligence Constraints: The expedited nature of bankruptcy sales can limit the time available for thorough due diligence.
Potential for Overbidding: Competitive auctions may drive prices higher than anticipated, potentially reducing the expected value proposition.
Regulatory Approvals: Certain transactions may require approvals from regulatory bodies, which can introduce delays or complications.
Successor Liability Concerns: Although assets are sold free and clear, certain liabilities, such as environmental obligations or union contracts, may transfer to the buyer under specific circumstances.
Financing Challenges: Securing financing for distressed assets can be more complex, requiring lenders to be familiar with bankruptcy processes.
Jonathan Friedland explains that potential buyers of distressed companies often have the ability to influence whether the target company files bankruptcy at all, “Bankruptcy is just one tool among many that are available to a financially distressed company, and many transactions happen in the context of an Article 9 sale, a receivership sale, or an assignment for the benefit of creditors.” Friedland notes that “these other venues each have their relative pros and cons as compared to purchase through bankruptcy.” Editors’ Note: for more information on business bankruptcy alternatives, read Buying Operating Assets from a Distressed Seller and Dealing with Corporate Distress 18: Buying & Selling Distressed Businesses.
Private Sales in Bankruptcy
Not all bankruptcy asset sales involve public auctions. In some cases, a debtor may pursue a private sale, negotiating directly with a buyer without a competitive bidding process. This approach can be advantageous when:
Time Is of the Essence: Private sales can be faster, avoiding the time-consuming auction process.
Limited Market Interest: If the pool of potential buyers is small, a private sale may be more practical.
Confidentiality Concerns: Private negotiations can keep sensitive information out of the public domain.
However, private sales still require court approval, and the debtor must demonstrate that the sale serves the best interests of the estate and its creditors.
Special Considerations for Foreign Buyers
Foreign investors interested in acquiring US assets through bankruptcy should be aware of additional considerations:
Regulatory Compliance: Transactions may be subject to review by the Committee on Foreign Investment in the United States (CFIUS), especially if they involve sensitive industries.
Currency Exchange Risks: Fluctuations in exchange rates can impact the overall cost of the investment.
Legal Representation: Engaging US-based legal counsel is essential to navigate the complexities of the US bankruptcy system.
Tax Implications: Understanding the tax consequences in both the US and the investor’s home country is crucial for effective planning.
Conclusion: Is a Bankruptcy Purchase Right for You?
Acquiring assets through bankruptcy can be a strategic move, offering access to valuable assets at potentially discounted prices. However, it’s essential to approach such opportunities with a clear understanding of the process, associated risks, and legal implications. Engaging experienced legal and financial advisors is crucial to navigating the complexities of bankruptcy.
To learn more about this topic, view Advanced Bankruptcy Transactions / Purchasing Assets in Bankruptcy. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about purchasing distressed assets.
This article was originally published here.
©2025. DailyDACTM, LLC. This article is subject to the disclaimers found here.
Federal Equity Receiverships: Key Concepts and Strategies
Federal equity receiverships are crucial mechanisms for addressing insolvency, fraud, and mismanagement in businesses. Because of their significance, many professionals in the legal and financial sectors should endeavor to understand the complexities and advantages of this remedy.
Understanding Federal Equity Receiverships
A federal equity receivership is a legal process wherein a court appoints a receiver to take control of a company’s assets and operations. This measure is typically employed in cases involving fraud, insolvency, or significant internal disputes. The receiver acts as a neutral fiduciary, managing the entity’s affairs under the court’s supervision to preserve assets and protect stakeholders’ interests.
Historically, receiverships have their roots in English common law and have evolved to address complex financial disputes and corporate misconduct. In the United States, federal equity receiverships are distinct from state court receiverships, primarily due to their broader jurisdictional reach. As Kelly Crawford, a partner at Scheef & Stone, highlights, a state court receiver is generally limited to the boundaries of that state, but a federal receiver can exercise control over assets nationwide.
Types of Federal Equity Receiverships
Federal equity receiverships can be divided into two categories based on their initiation:
Regulatory Receiverships: These receiverships address violations like securities fraud or Ponzi schemes and are initiated by government agencies such as the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and the Federal Trade Commission (FTC).
Private Litigation Receiverships: Arising from disputes among private parties — such as creditors, business partners, or shareholders — these receiverships aim to resolve issues like mismanagement or internal conflicts.
Melanie Damian of Damian, Valori, & Culmo notes that private receiverships are becoming increasingly prevalent. Lenders and business owners are using receiverships to secure assets in disputes — think business divorce.
The Role and Powers of a Receiver
Once appointed, a receiver assumes comprehensive control over the entity’s assets and operations. Their responsibilities include managing daily business activities, safeguarding assets, investigating fraudulent transfers, and, if necessary, liquidating assets to satisfy creditors.
The scope of a receiver’s authority is defined by the court order appointing them. This order delineates the receiver’s duties, powers, and the extent of their control. Given the lack of extensive statutory guidelines for federal equity receivers, the appointing order becomes the primary source of their authority.
Greg Hays of Hays Financial Consulting, a member of the National Association of Federal Equity Receivers, emphasizes that receivers’ powers can be extremely broad. They can issue subpoenas, take over management, and even initiate lawsuits on behalf of the receivership estate.
The Legal Process for Appointing a Receiver
The appointment of a receiver requires a legal proceeding in which the moving party (often a creditor, regulatory agency, or minority shareholder) petitions the court. The process typically involves the following steps:
Filing a Complaint – The party seeking a receivership must file a complaint that establishes the basis for court intervention. This may include evidence of fraud, insolvency, mismanagement, or the need to preserve assets pending litigation.
Filing a Motion for Appointment – A motion is then submitted, requesting that the court appoint a receiver. This motion is often accompanied by affidavits, financial statements, and other documentation supporting the need for receivership.
Court Hearing – In many cases, courts hold a hearing where the judge considers arguments from all parties involved. However, in emergency situations, the court may appoint a receiver ex parte, meaning without prior notice to the opposing party.
Issuance of a Court Order – If the court grants the motion, it issues an Order Appointing Receiver. This order serves as the governing document that defines the receiver’s duties, powers, and limitations.
Filing Under 28 U.S.C. § 754 – If the receivership involves assets across multiple states, the receiver must comply with 28 U.S.C. § 754, which allows the court’s jurisdiction to extend nationwide. The receiver is required to file copies of the appointment order in federal districts where assets are located within 10 days to maintain jurisdiction.
Implementation of Receivership – Once appointed, the receiver assumes control over assets, manages operations (if necessary), and carries out their duties as dictated by the court order.
Kathy Bazoian Phelps, partner at Raines Feldman LLP, explains that receivers are often appointed in various disputes, such as investor fraud cases, shareholder disputes, and commercial real estate foreclosures.
Advantages of Federal Equity Receiverships
Opting for a federal equity receivership offers several benefits over other remedies like bankruptcy, including:
Immediate Intervention: Receiverships can be granted ex parte — without prior notice — allowing for swift action to control and preserve assets.
Asset Protection: The receiver can promptly freeze bank accounts, secure records, and prevent further dissipation or misappropriation of assets.
Flexibility: Unlike bankruptcy, which operates under a rigid statutory framework, receiverships are equitable remedies tailored to the specific circumstances of each case.
Cost Efficiency: Bankruptcy proceedings often entail significant administrative expenses and involve multiple professionals. Receiverships tend to be more streamlined, potentially reducing costs.
Confidentiality: Receiverships generally attract less public attention than bankruptcy filings, helping to protect the entity’s reputation.
A receivership can immediately eliminate bad management by placing the company under the supervision of the Court.
Challenges and Limitations of Receiverships
While receiverships offer a powerful tool for asset management and recovery, they are not without challenges, including:
Limited Statutory Guidance – Unlike bankruptcy, which has a detailed legal framework under the US Bankruptcy Code, receiverships rely primarily on judicial discretion. This can lead to inconsistencies in how cases are handled.
Potential for Court Challenges – Affected parties, such as business owners or defendants, may challenge the receivership appointment, arguing that it is unnecessary or excessive.
Receiver Compensation – Receivers and their legal teams must be compensated from the assets under administration. If assets are insufficient, creditors may have to cover these costs, reducing their ultimate recovery.
Overlap with Bankruptcy Proceedings – If a bankruptcy petition is filed, the receivership may be overridden by the automatic stay under 11 U.S.C. § 362, disrupting the receiver’s control.
Federal Equity Receivership vs. Bankruptcy
While both receiverships and bankruptcy address financial distress, they differ in several key aspects, as outlined in the following table:
Aspect
Receivership
Bankruptcy
Initiation
Typically initiated by creditors or regulatory agencies through a court-appointed process.
Initiated by the debtor filing a petition for relief under the Bankruptcy Code.
Management Control
A court-appointed receiver takes over management, displacing existing leadership.
Existing management often remains in control as a ‘debtor-in-possession,’ especially in Chapter 11 cases.
Legal Framework
Governed by equitable principles and tailored court orders, offering flexibility.
Governed by the Bankruptcy Code, which provides a structured and uniform process.
Scope of Authority
Receiver’s powers are defined by the appointing court and can be broad, including asset liquidation and litigation.
Bankruptcy trustees have defined statutory powers, with actions subject to court approval.
Duration and Cost
Potentially quicker and more cost-effective due to streamlined procedures.
Can be lengthy and expensive, involving extensive court proceedings and professional fees.
Kelly Crawford notes that bankruptcy makes sense in complex reorganizations, but in cases where creditors want quick action, a receivership is often the better choice.
However, it’s essential to consider that the appointment of a receiver does not preclude bankruptcy proceedings. If a bankruptcy case is filed after the appointment of a receiver, the bankruptcy filing generally supersedes the receivership. Secured creditors should note that if a bankruptcy case is filed after the appointment of a receiver, then the filing will trump the receiver’s appointment.
Final Thoughts
Federal equity receiverships provide a flexible and effective solution for managing financially distressed businesses, preserving assets, and combatting fraud. They can serve as a powerful alternative to bankruptcy when swift intervention is required.
Receiverships allow for quick action, independent oversight, and equitable distribution of assets — often making them the best choice when bankruptcy is impractical. Whether used as a proactive measure or a recovery tool, these court-appointed roles play an essential part in ensuring fair financial resolutions.
To learn more about this topic, view the webinar Federal Equity Receiverships / Key Concepts and Strategies in Federal Receiverships. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested in reading other articles about receiverships.
This article was originally published here.
©2025. DailyDACTM, LLC. This article is subject to the disclaimers found here.
Beltway Buzz, April 11, 2025
The Beltway Buzz™ is a weekly update summarizing labor and employment news from inside the Beltway and clarifying how what’s happening in Washington, D.C., could impact your business.
Wilcox Reinstatement Legal Back-and-Forth Keeps Her Off the NLRB. For Now. For the second time in a matter of weeks, Gwynne Wilcox was poised to return as a member of the National Labor Relations Board (NLRB). Until she wasn’t. Here is what happened this week. On April 7, the full U.S. Court of Appeals for the District of Columbia Circuit vacated a three-panel decision that upheld Wilcox’s termination while the litigation challenging her removal proceeds. This decision would have allowed Wilcox to return to the Board. However, Supreme Court Chief Justice John Roberts subsequently stayed the initial district court order that had returned Wilcox to the Board. All of this procedural back-and-forth means that Wilcox will remain off the NLRB for the time being. As the Buzz has been predicting, ultimately, the Supreme Court of the United States will determine whether the president can remove members of independent federal agencies that operate as boards and commissions.
Samuels Sues. Jocelyn Samuels, who President Donald Trump removed from her position as commissioner on the U.S. Equal Employment Opportunity Commission (EEOC) in January 2025, has filed a legal challenge to her removal. Samuels, who was first appointed to the EEOC in 2020 by President Trump, maintains that “the EEOC’s structure, mission, and functions, along with the terms set for Commissioners, demonstrate Congress’s intent to provide the Commission continuity, stability, and insulation from political pressure exerted by the president.” Former chair of the Commission, Charlotte Burrows, has also filed a lawsuit challenging her removal. Currently, the Commission consists of Acting Chair Andrea Lucas and Commissioner Kalpana Kotagal.
Administration Seeks Quick Repeal of “Unlawful” Regulations. As a follow-up to his February 19, 2025, Executive Order 14219 (“Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative”), this week, President Trump issued a memorandum instructing executive branch agencies to “take steps to effectuate the repeal of any regulation, or the portion of any regulation, that clearly exceeds the agency’s statutory authority or is otherwise unlawful.” According to the memorandum, agencies should prioritize regulations that conflict with ten prescribed Supreme Court decisions (all issued in 2020 or later), including Loper Bright Enterprises v. Raimondo,Securities and Exchange Commission v. Jarkesy, and Students for Fair Admissions, Inc. v. President and Fellows of Harvard College. The memorandum further instructs agencies, when repealing such regulations, to proceed under the “good cause” exemption of the Administrative Procedure Act, which allows agencies to bypass the normal “notice and comment” process.
House Passes Bill Limiting Nationwide Injunctions. On April 9, 2025, the U.S. House of Representatives passed the No Rogue Rulings Act of 2025, by a vote of 219–213. Only one Republican—Michael R. Turner of Ohio—joined with all Democrats to vote against the bill. The bill would prohibit federal district courts from issuing injunctions that apply beyond the parties to the case, except in multistate challenges. Of course, federal district court nationwide injunctions blocked the implementation of the Obama administration’s 2016 persuader and overtime rules, as well as the NLRB’s 2023 joint employer rule, and the U.S. Department of Labor’s (DOL) 2024 overtime rule.
House Committee Explores College Athletes’ Employment Status. On April 8, 2025, the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor, and Pensions held a hearing entitled, “Game Changer: The NLRB, Student-Athletes, and the Future of College Sports.” The hearing focused on the changing landscape of college athletics, and specifically explored the question of whether college athletes should be considered employees. Republicans maintained that college athletes are students and promoted the Protecting Student Athletes’ Economic Freedom Act, which would prohibit student-athletes from being classified as employees while retaining the ability to benefit from their name, image, and likeness.
FMCS: And Then There Were Four? It has been several weeks since the Trump administration effectively dismantled the Federal Mediation and Conciliation Service (FMCS), and the fate of the labor dispute-settling agency is now coming into clearer focus. This week, it was reported that the agency is down to just four employees. According to FMCS data, last year, the agency helped mediate more than 2,000 collective bargaining negotiations.
RIFs at DOL, USCIS. According to media reports, this week, Secretary of Labor Lori Chavez-DeRemer offered more DOL employees the opportunity to resign or retire as part of the administration’s efforts to shrink federal government agencies. This offer was reportedly made ahead of expected layoffs at the agency. Employees at U.S. Citizenship and Immigration Services (USCIS) reportedly received a similar offer. In February 2025, about fifty USCIS employees were separated as part of a broader purge at the U.S. Department of Homeland Security (DHS). At this time, it is unclear how reductions in force (RIFs) at DOL might impact the department’s rulemaking and enforcement agenda. On the other hand, RIFs at USCIS are very likely to result in backlogs and delayed processing times.
“Time Stand Still.” This week, the U.S. Senate Committee on Commerce, Science, and Transportation held a hearing entitled, “If I Could Turn Back Time: Should We Lock the Clock?” We are happy to Cher the details. The hearing dealt with a bit of an evergreen topic here at the Buzz: Congress’s role in setting time policy (we’ve previously discussed the issue here and here). Specifically, the hearing focused on legislation that would make daylight savings time permanent in the United States. Proponents of the concept maintain that making daylight savings time permanent leads to increased economic activity, more time for exercise, and safer roads. Opponents claim that such a move would push sunrise to after 8:00 a.m. in many parts of the country, leading to circadian misalignment and reduced health outcomes. While experts and laypeople alike can debate the pros and cons of the issue, our senators clearly have an opinion: in 2022, the Senate passed the Sunshine Protection Act (making daylight savings time permanent) by unanimous consent.
The Buzz will be on hiatus next week but will publish again on April 25, 2025.