An Oral Agreement Is Not Worth the Paper It’s Printed On

A. Thomas DeWoskin

By A. Thomas DeWoskin



On June 4, 2018, the U.S. Supreme Court held that an individual’s false oral statement about his assets would not support a finding of fraud under the relevant provision of the U.S. Bankruptcy Code. That provision required the false statement to be in writing if it were to serve as the basis of a fraud claim. (Lamar Archer & Cofrin LLP v. R. Scott Appling, Case Number 16-1215, 584 U.S. ___ (2018), issued on June 4, 2018.)

In this case, Mr. Appling hired a law firm to represent him in some litigation. When he had fallen behind on his legal bill to the extent of some $60,000, the firm threatened to withdraw from the case. He told the firm that he was expecting a tax refund of about $100,000 which would cover that bill and all future fees. Relying on Mr. Appling’s assertion, the law firm continued with the representation.

As you probably have concluded by now, there was no $100,000 refund. It was only $60,000, and Mr. Appling invested it in his business rather than paying his attorneys. Worse, when his attorneys subsequently asked about the refund, Mr. Appling lied and told him that he hadn’t received the refund yet. Continue reading »

Missouri Finally Has a New Statute Governing Receivers and Receiverships

A. Thomas DeWoskin

By A. Thomas DeWoskin



As most commercial attorneys in Missouri know, the previous Missouri statute governing receiverships, which was enacted in 1939 and consisted primarily of one sentence, provided very little guidance to attorneys, judges, or the parties involved.  Missouri’s new receivership statute solves that problem.  Effective August 28, 2016, and consisting of some 34 sections, the statute now provides guidance regarding the appointment of a receiver, the powers of a receiver, the rights and duties of the parties, and claim and distribution procedures.

A petition to appoint a receiver is now an independent cause of action.  It does not need to be merely an “add on” request to some other claim the creditor has against the debtor.  Receiverships can be instituted in order to dissolve an entity, enforce a lien, enforce a judgment, and other specific purposes, as well as any other situations in which the court may find a receivership appropriate.

Commencing a receivership is also a useful new way to resolve an ownership dispute or allow a majority shareholder to challenge a misbehaving management without destroying the business.

One of the most important improvements in Missouri’s receivership process is the requirement of notice to debtors.  Continue reading »

Investment Crowdfunding Requires an Attorney — with Long Securities Law Experience

Joseph R. Soraghan

By Joseph R. Soraghan



The entrepreneurial press, indeed, even the popular press, is abuzz about regulation crowdfunding (i.e., investment crowdfunding), which became legal on May 16, 2016.  And according to some advertisements (primarily by portals, the businesses which will provide the platforms for such crowdfunding), the fund-raising company does not need an attorney, although it would be “nice.”  Rather, they say, or imply, small and large businesses with their portals can simply get on the internet to quickly fund their ideas and better the economy at the same time!

Do not believe either the buzz or the advertisements.

Regulation CF is Only a Small (Albeit Very Important) Part of the Applicable Law

Regulation crowdfunding (17 CFR Parts 200,  et seq.)(“Reg. CF”) though it is a sea change from (some of) the rules governing entrepreneurial finance, it is not for everyone.  Indeed, for most entrepreneurs it should be considered as a last resort only.  (See, for example, “Regulation Crowdfunding; Is it Right for You?”, St. Louis Small Business Monthly, June 2016, p. 29.)  Secondly, Reg. CF adds to the rules and required steps for legally raising capital , and thus creates even more of a need for the assistance of a lawyer.

That is, the only (albeit very important) change in the law is that now certain “general solicitation” is allowed to promote certain types offerings of securities.  But not all general solicitation is allowed.  (For example, much information which could be promulgated other than on the platform of a portal such as by newspaper or television is still illegal.)

Virtually all other regulations, statutes, laws – and judicial lore – applicable to raising capital prior to Reg. CF remain applicable and will be applied by securities regulators – and by attorneys for investors who lose money in their crowdfunded investments. The securities regulators, which have authority to prosecute suspicious offerings,  have been opposed to and wary of investment crowdfunding since it was required by the JOBS Act in 2012, including Missouri (see, for example, “Kander Issues Investor Alert on Crowdfunding.”)

With the exception of allowing (limited) general solicitation, all the law (and the lore of the regulators and courts which developed since the Securities Act of 1933) still applies to all offerings, including crowdfunded offerings.  So do the complicated rules and methods. For example: Continue reading »

Your Restaurant is Failing – Now What?

A. Thomas DeWoskin

By A. Thomas DeWoskin



Restaurants fail for a variety of reasons, from failure to watch costs to failure to develop the right menu to a nearby construction project eliminating most of your on-street parking.  If you followed the tips in my previous article, you should have some money to rely on going forward.

If your financial problems are operational or managerial, one of the things you can do at this late stage is to hire a consultant to help you tweak your menu, streamline your operations, or take any of a number of additional steps to bring you back to profitability.  This is the time to be humble, rather than arrogant – ask for help!  You should also consult with a bankruptcy lawyer at this point.  That does not mean you are necessarily going to file bankruptcy, but an attorney knowledgeable in this area can tell you what to expect if different scenarios unfold. Unanswered ‘end-game’ questions will add to your stress and divert you from your primary mission of saving your restaurant. You can learn a lot of useful information for not a lot of money, and gain some peace of mind as well.

A bankruptcy attorney also can help with your current problems. For instance, the attorney can negotiate with the landlord, either to reduce the rent or give back some space.  He can negotiate with your lender and your suppliers to negotiate better terms, or a temporary break in your monthly payments. Continue reading »

Opening a Restaurant: Plan for Success – and Failure, Too

A. Thomas DeWoskin

By A. Thomas DeWoskin



Failure is a topic most restaurateurs would prefer to avoid when setting up a new venture, when their heads are full with visions of success. However, the restaurant business is tough, and problems can arise due to circumstances both within and outside of your control.

A great time to protect yourself from potentially devastating problems is now, while you are setting up your business and you can plan calmly.

In this post, I will discuss several of the initial legal steps you can take to prepare for a potential failure.  In my next post, I will turn to the ramifications of failure and what actions you can take at that time.

First, consult an attorney to prepare your initial legal documents.  There are many issues of which you may be unaware, or that you may not know how to resolve. You need to choose an appropriate legal structure and learn about human resource issues. Especially if you have a partner, you will want to deal with buyout issues, succession issues and how to handle deadlocks if multiple owners are unable to reach decisions on major issues.  As they say, an ounce of prevention is worth a pound of cure. Continue reading »

Investment Crowdfunding Will Be Legal But Will It Be an Improvement?

Joseph R. Soraghan

By Joseph R. Soraghan



In the JOBS Act adopted in April 2012, Congress required the Securities and Exchange Commission (“SEC”) to adopt rules legalizing (i.e., exempting from the requirement to register with the SEC) the offer and sale of securities by small business issuers (which cannot afford registered public offerings) using mass media, to-wit: the Internet, social media, etc. Historically, both state and federal exemptions required “privateness” and forbade “general solicitation.”

On October 30, 2015, the SEC, in a 686 page release, finally adopted rules (see pages 547-686) to allow investment crowdfunding (the use of mass media to make offers and sales to non-accredited investors, i.e., persons with less than $1 million net worth and incomes under $200,000 annually). The rules will become effective in April 2016.

Supporters argue that these rules simply bring the offering and sales of securities into the modern age of mass media and allow persons of limited means to participate in the great boom of entrepreneurship. Critics, on the other hand, point out that those are the very persons who are the least investment sophisticated and the most vulnerable to financial fraud.

What Was Available Before Investment Crowdfunding?

Continue reading »

Regulation Crowdfunding: Is It Right for You?

Joseph R. Soraghan

By Joseph R. Soraghan



To much ballyhoo, on October 30, 2015, the Securities and Exchange Commission (“SEC”) finally adopted rules to allow investment crowdfunding (which the SEC calls “Regulation Crowdfunding”). That is, it allows the use of mass media (Internet, etc.) (called “general solicitation”) to make offers and sales to non-accredited investors. Those are persons with less than $1 million net worth and annual incomes under $200,000. (Under present rules, general solicitation may be used only to solicit purchases from “accredited” investors.) The new rules will not become effective before April 2016.

“Regulation Crowdfunding”: A Method for True Investment Crowdfunding

Conceptually, allowance of general solicitation to solicit non-accredited investors is a sea change, in direct conflict with the basic investor protection philosophy of the SEC and state regulators since adoption of the Securities Act of 1933. The actual benefit of the new rules, however, is in some doubt. Continue reading »

Inherited IRAs – Once Protected – Now Possibly Fair Game for Creditors

A. Thomas DeWoskin

By A. Thomas DeWoskin



You should read this article if  –

  1. You expect to transfer funds to your descendants through an individual retirement account (IRA); or
  2. You have inherited an IRA from a relative.

The U.S. Supreme Court has ruled in Clark v. Rameker that the money in an inherited IRA does not qualify for the protection from creditors as provided in the Federal Bankruptcy Code.[1]

The Court concluded that funds in an IRA which was inherited from someone else are not really retirement funds.  It gave three reasons for this conclusion.  The holder of an inherited IRA:

  1. Can never invest additional money into the account.
  2. Is required to withdraw money from the account, no matter how far away retirement may be.
  3. May withdraw the entire balance of the account at any time – and use it for any purpose – without penalty. Continue reading »

SEC Finally Proposes Rules to Allow Crowdfunding

Joseph R. Soraghan

By Joseph R. Soraghan



Not quite ten months late, the Securities and Exchange Commission (SEC) on October 23, 2013 proposed rules to allow entrepreneurs and other small businesses to advertise investments in their companies on the Internet and in other general venues, and to allow persons other than wealthy investors to purchase those investments. Congress, in the JOBS Act signed by President Obama on April 5, 2013, had told the SEC to propose such rules by December 31, 2012. (In fairness, the SEC was faced with great pressures from numerous quarters, including the legislators themselves, concerning the content of the rules, which made that deadline impossible to meet.)

This type of investing, called “investment crowdfunding,” was illegal, and will remain illegal until the process of review, amendment and adoption of final rules is complete. The SEC has asked the public for comment on the proposed rules within 90 days. At least a few months of further processing after that 90 day period will be required before the rules are final. Continue reading »

False Economy: Why Saving a Few Dollars on Legal Fees Now Can Cost You Big Later

A. Thomas DeWoskin

By A. Thomas DeWoskin



 

 

  • You’re about to sign a lease for your company’s new premises. Should you have a lawyer review it, or save the money?
  • You’re about to sign an employment agreement with your new employer. Should you have a lawyer review it, or save the money?
  • You and your best friend are going to start a new business. Should you have a lawyer advise you, or get the forms off the internet and save the money?

Both in jest and with some seriousness, business people, especially entrepreneurs, tend to view lawyers skeptically. Their perception is that lawyers run up fees, make simple transactions complicated, and sometimes cause deals to fall apart completely with all of their questions.

This is a short-sighted view of how attorneys can help you and your business. Experienced business minds understand that lawyers, when properly used at the beginning of a transaction rather than later after problems have developed, can be problem avoiders. And a problem avoided can be big money saved.

In the lease situation above, for example, your lawyer would be sure that you signed the lease in such a way that only your company, not you personally, would be liable. She might negotiate a provision that you don’t pay any rent while the space is being readied for your occupancy or for reduced rent if the landlord doesn’t provide promised services. An experienced attorney has seen a lot of leases, and knows the traps they often contain.

Lawyers aren’t deal breakers. Their job is to point out the potential risks in a transaction so you, the client, can decide whether those risks are worth the potential benefits of proceeding. If the risk/reward ratio isn’t to your liking, then YOU break the deal. If the risk is acceptable, then you proceed. In either event, you have made the decision in an informed and practical manner. You are in control; your lawyer, like all of your professional service providers, works for you. Your attorney’s role is to provide advice, share wisdom and insight, and help you make the business decisions. Continue reading »