The American Bar Association held its annual meeting in Chicago from July 30 to August 4. One of the benefits of the meeting is an opportunity to hear the latest developments from fellow practitioners, academics and experts in a variety of areas. The meeting offers hundreds of meetings and seminars on many topics.
Especially active this year is the ABA's Business Law Section. While no one could attend all of the sessions, we did manage to attend several. Some of the "takeaways" in these sessions included:
- Limited Liability Companies
- The limited liability series is still not generally recommended except for certain situations. A limited liability series is basically a separate unit within a limited liability company that can be a separate "stand alone" business, with separate accounting, management, and business operations. For example, a series is often used by investment funds to create separate funds which have different holdings and investment goals.
- When limited liability series were first introduced, they appeared to provide even more flexibility for limited liability companies. But, although both Illinois and Delaware provided for limited liability protection for each series, the application in an actual situation is still in doubt. In fact, in Delaware there is even doubt as to whether a series is a separate legal entity. So the use of a series in an actual operating entity is still problematic.
- In Illinois a series is, by law, a separate entity. But one commenter noted that this was more due to the Illinois Secretary of State's desire to impose fees on separate entities than being based on a legal analysis as to whether a series should be a separate entity.
- In Delaware only 1% of limited liability companies are filed as series LLCs.
- The Impact of the Financial Collapse on Corporate Boards
- As would be expected, the meltdown in the financial markets, coupled with the extreme decline in asset and stock values, has spurred litigation. The first wave of litigation was directed at corporate boards.
- The next wave of litigation may be directed at so-called "gatekeepers," such as rating agencies, accounting firms, law firms, and securities underwriters.
- The success of the litigation is still unknown. Liability may be difficult to show and actual and potential defendants have several defenses available to them.
- Fraud is, of course, a common claim but a plaintiff has several hurdles to overcome to show fraud. Some defendants, using a "fraud by hindsight" defense, contend that the global financial crisis was not anticipated and efforts to paint a result as caused by "fraud" are mistaken.
- One of the biggest barriers to recovery may be the insolvency of the truly culpable (e.g., Bernard Madoff). Those who actually may have perpetrated a fraud may now have little for victims or plaintiffs to reach. Third parties may be more viable financially, but will also be more difficult to reach.
- Improvements to Revised Article 9
- Incredibly, it has now been seven years since adoption of Revised Article 9 of the Uniform Commercial Code, which greatly modified the rules for secured financing. Revised Article 9 has worked well. Even so, some minor modifications are being discussed in Revised Article 9.
- One change is deleting the requirement to include an organizational ID number in a UCC- 1 financing statement. This follows states' efforts to remove any reference to individual social security numbers in UCC-1 financing statements.
- By far, the change which is the most discussed is a modification to rules for filings with respect to individual debtors. Individual debtor name issues have created many disputes under Revised Article 9. In response, some states have passed "safe harbor" provisions, permitting a creditor to use an official document, such as a passport, state issued driver’s license, or state issued identification card.
- But there is concern that any solution may create more problems than it solves. The vast majority of filings are against corporations. Creating complex rules applicable only to individual debtors may have unintended effects.