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Consider the following scenario. A manufacturing company is experiencing significant financial and operational difficulties. A lender provides it with $20 million secured by a second priority lien and, in connection with this financing, is given two seats on the manufacturer's board of directors. For the next 3 years, the manufacturer continues to suffer losses and the lender continues to extend additional financing. By the third year, the lender has selected three of the company's four board members. At this point, the manufacturer is insolvent, undercapitalized and no disinterested third party will lend it additional money. Nevertheless, the lender extends new financing. No notes are issued for portions of this financing, and the lender does not obtain a valuation to determine whether the manufacturer has collateral to support the new financing. Then the lender, not management, negotiates a sale of the company to occur in the context of a pre-negotiated bankruptcy, with the lender to acquire more than 30% of the stock in the newly formed buyer. The manufacturer files a bankruptcy petition and immediately moves for approval of the sale. The buyer credit bids the lender's claim at the section 363(b) sale, and acquires the company's assets over the objection of the creditors' committee. Should the lender's third-year advances -- made while the company was insolvent and undercapitalized and at a time when no disinterested third party would lend money -- be recharacterized as equity? After examining all of the facts and circumstances, the Third Circuit answered no.

According to the newly enacted Bankruptcy Abuse Pre-vention and Consumer Protection Act of 2005 (BAPCPA), attorneys practicing bankruptcy law may in fact be required to identify themselves as debt relief agencies. One of the new and significant aspects of the BAPCPA are the provisions designed to restrict and monitor the activities of so-called "debt relief agencies." Among other requirements, Section 528(a)(4) mandates that a "debt relief agency shall ... clearly and conspicuously use the following statement in such advertisement: 'We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.' or a substantially similar statement." See generally Sections 526, 527 and 528 for the restrictions on and requirements for debt relief agencies. However, who and what a debt relief agency is, and more specifically, whether attorneys are debt relief agencies, remains a matter of great debate, dispute and confusion.

Recent rulings of interest to you and your practice.

Recent rulings of importance to you and your practice.

At one time corporate attorneys had one type of statutory business entity to worry about -- the corporation. Now there is also the LLC, LP, LLP, LLLP and others. The statutes authorizing and governing these business entities are continually being amended by the state legislatures and interpreted by the courts. This edition of the Quarterly State Compliance Review looks at some amendments that went into effect, and court decisions that were issued, during the last 3 months.

Living in the technology age, we are besieged by information: constant "breaking stories" on 24-hour news channels, e-mails at all hours to our handhelds, and phone calls to our cells. To remain competitive, companies have also followed the trend, providing reams of information and data to workers. As a result, employees now grapple with information overload and must evaluate and prioritize what information to read, disseminate and store, and what information to discard. This is a particularly significant problem for in-house counsel who must ensure that all employees have access to -- and know about -- information that is key to the operation of the company. More importantly, much of this information is meant to keep the company out of the courtroom and facing down litigation. So what's an in-house counsel to do?

The implementation of ' 404 of the Sarbanes-Oxley Act (SOX) is essentially complete for large public companies. Most agree it was expensive and proved an immense corporate distraction. According to Financial Executives International (FEI) 94% of executives polled reported that the cost of compliance with ' 404 far outweighed the benefits. Nevertheless, large companies were able to fund the documentation of their control structure and get on with business. Some companies even reported customer service improvements, cost-saving consolidations and streamlined operational benefits stemming from the exercise. But lost in this post-mortem is that the implementation of ' 404 is not finished. Overlooked by many is that ' 404 has yet to be implemented in one of our most important pillars of the U.S. economy, our small public companies defined as those with a market capitalization of less than $75 million.

Businesses borrow money. Security for the repayment of a loan often includes a lien granted by the borrower to its lender on the borrower's equipment, trade fixtures and inventory ("Tenant's Property"). A lender and its borrower can expend significant time and resources negotiating the loan documents whereby the borrower grants the lender a security interest in Tenant's Property. Of course, businesses also frequently lease the space in which they conduct their operations ("Leased Premises"). If they plan to locate portions of Tenant's Property within a Leased Premises, a conflict of interests inevitably arises between the lender and the owner of the Leased Premises, <i>ie</i>, the borrower's landlord. A lender will want to obtain an unfettered right to enter the Leased Premises and remove the Tenant's Property without being deemed a trespasser or a converter of any interest of the landlord in Tenant's Property.

Highlights of the latest commercial leasing cases from around the country.

There is a common misconception that the obligation to satisfy a "best efforts" clause requires rigorous performance, regardless of hardship or cost to the promisor. This misconception of the meaning of the term "best efforts" stems from the divergence between common parlance and jurisprudence. Considering the term in the vernacular, "best efforts" implies superlative action. Therefore, when one puts forth one's "best efforts," such action is not simply good, or better, but the best according to one's capabilities. James M. Van Vliet, Jr., <i>"Best Efforts" Promises Under Illinois Law,</i> Ill. B.J. 5 (Dec. 2000). The implication is that to satisfy a promise for "best efforts," there is no limit as to what one will do, no hardship or expense too great to satisfy the obligation. In fact, it would appear that many believe this to be the definition of "best efforts."