On December 15, 2020, Governor Andrew Cuomo signed into law sweeping changes to New York’s General Obligations Law governing powers of attorney (“POA”). The new law is effective on June 14, 2021.

The new law is intended to: 1) simplify the current POA form, which is prone to improper execution; 2) allow for the execution of a POA containing language that substantially conforms to the law, because the current law’s exact wording requirement is unduly burdensome and may be a trap for the unwary; 3) provide safe-harbor provisions for those who, in good faith, accept an acknowledged POA without actual knowledge that the signature is not genuine; 4) allow damages to be recovered from those who unreasonably refuse to accept a valid POA.

The adoption of the bill does not affect the validity of any existing valid statutory short form POA, gift riders, or revocation of a POA that was delivered to an agent before the law’s effective date.

What Constitutes a Valid POA

The old law contained a statutory short form POA which had to be strictly completed in order to be accepted by a third party, such as a bank or credit union.  Under the new law any POA which “substantially conforms” to the statutory form must be accepted by third parties located or doing business in New York State unless such third party has reasonable cause not to honor it. Reasonable cause includes a belief that the POA was not  properly executed in accordance with the laws in effect at the time it was signed.

A POA will now be valid even if it contains: (a) an insignificant mistake in wording, spelling, punctuation or formatting; (b) bold or italic type; or (c) language that is not  identical  to the statutory form so long as it substantially conforms with the form. There may be “substantial conformity”  even if some clauses that appear in the statutory form are missing or if there is insubstantial variation in the wording of the “Caution to the Principal” and “Important Information for the Agent” provisions.

The new law also modifies the signature requirement for executing a POA. The POA no longer needs to be signed by the principal. A designee may sign the document at the principal’s direction while in his or her presence.

Procedure For Rejecting a POA

The new law prescribes a mechanism for rejecting a statutory short form POA.  Not later than the tenth business day after presentation of an original or attorney-certified copy of  a  statutory  short  form  POA that is properly executed, the recipient shall either: (a) honor the statutory short form  POA,  or (b) reject the statutory short form POA in a writing that sets forth the reasons for such rejection, or (c) request that  the  agent  execute  an  acknowledged affidavit stating that the POA  is  in  full  force and effect.

Reasons for rejection may include non-conforming form, missing or incorrect signature, invalid notarization, or unacceptable identification. In the event that the statutory  short form POA presented is not an original or attorney-certified copy, as part of the initial rejection, the third  party must also identify the other provisions of the short form POA, if any, which would otherwise constitute cause for rejection.  If the third party initially rejects the statutory short form POA in a writing that sets forth the reasons for such rejection, the third party shall within seven business days after receipt of a writing in response to the reasons for such rejection: (a) honor the  statutory  short  form  POA, or (b) finally reject the statutory short form POA in a writing which  sets forth the reasons for such rejection. If the third party requests the agent to execute an acknowledged affidavit, the third party must honor the statutory  short  form  POA  within seven business days after receipt by the third party of an acknowledged affidavit stating that the POA is in full force  and effect unless reasonable cause exists to decline to accept the POA.

The new law contains notice provisions which detail how and to whom the foregoing notices must be sent.

Damages For Rejecting a Valid POA

While the new law is intended to make it easier for a POA to be accepted, it may also create issues of fact which will have to be decided by a court in a special proceeding. Specifially, the new law provides that a court can award damages, including reasonable attorneys’ fees and costs, if it finds that the refusal to accept a properly executed POA was unreasonable.

Protections For Accepting POAs

The new law offers additional protection for third parties who in good faith act on an acknowledged POA. Unless the third party had “actual knowledge” that a signature was not genuine, it may rely on the presumption that an acknowledged signature (verified before a notary public) is genuine. Third parties are also protected against void, invalid, or terminated POAs unless they had actual knowledge of same.

A person who is asked to accept an acknowledged POA may request, and rely upon, without further investigation:

(1) an agent’s certification under penalty of perjury of any factual matter concerning the principal, agent or POA; and

(2) an opinion of counsel as to any matter of law concerning the POA if the person making the request provides in writing or other record the reason for the request. An opinion of counsel  must be provided at the principal’s expense unless the request is made more than ten business days after the POA is presented for acceptance. It should be noted that this new “safe harbor” provision is not included in the new section of the law which establishes the procedure for rejection of a POA.

A person who conducts activities through employees is without actual knowledge of a fact relating to a POA, a principal, or an agent if the employee conducting the transaction involving the POA is without actual knowledge of the fact after making reasonable inquiry with respect thereto.

If a third party conducts a transaction in reliance on a properly executed statutory short form POA, the third party shall be held harmless from liability for the transaction.

Elimination of Statutory Gift Rider

The new law eliminates the Statutory Gift Rider to the POA. This rider was needed in the past to, among other things, open, modify or terminate a joint account or an “in trust for” account.  Now, the principal can authorize transactions on these types of accounts by expressly stating the agent’s authority in the Modifications section of the POA.

Other Technical Amendments

The new law also contains several technical amendments which expand an agent’s power to make aggregate gifts in a calendar year from the current $500 limit to $5,000 without requiring a modification to the form; clarify an agent’s obligation to keep records or keep receipts; and clarify the agent’s authority with regard to financial matters related to health care.

While these amendments strive to simplify New York’s power of attorney law, the law remains complex and legal counsel should be consulted to assist in drafting, interpreting, accepting and rejecting powers of attorney.

I. Competitive Bidding – The Basics

The purpose of competitive bidding is to create an open and fair environment that encourages transparency and accountability, as well as competition.  Local Government Management Guide Seeking Competition in Procurement, NYS Office of the Comptroller, Division of Local Government and School Accountability (July 2014) at: Seeking Competition. Under General Municipal Law § 103, when a procurement meets certain monetary thresholds, local municipalities and school districts (collectively, hereinafter “municipalities”) are required to advertise for competitive bids.  For example, purchase contracts involving expenditures in excess of $20,000 and contracts for public work involving expenditures of $35,000 or higher are subject to public bidding under General Municipal Law § 103.  An exception to this rule are emergency procurements under General Municipal Law § 103(4) (discussed supra).

General Municipal Law § 103(2) further requires that “[A]ll bids received shall be publicly opened and read at the time and place so specified and the identity of all offerers shall be publicly disclosed at the time and place so specified.” However, the COVID-19 pandemic has forced municipalities to consider whether it is smart, safe and/or permissible to hold in-person public bid openings. Particularly since Executive Order (“EO”) 202.10, as extended and amended by EOs 202.38, 202.42, 202.45, and 202.89 (“EO 202.10”) limits and/or prohibits certain non-essential gatherings. Therefore, municipalities are effectually prohibited from holding non-essential in-person bid openings where the number of persons in attendance (inclusive of on-site staff) exceeds the number permitted by EO 202.10.

II. Suspension of the Requirement to hold In-Person Bid Openings

In light of the foregoing concerns, on March 27, 2020 Governor Cuomo issued EO 202.11, which suspends the requirement that municipalities hold public (in-person) bid openings.  Instead, EO 202.11 permits municipalities, where practical, to hold non-public bid openings so long as the municipalities provide the public with a meaningful opportunity to view such bid openings by recording or live streaming them. On December 30, 2020, Governor Cuomo extended EO 202.11 until January 29, 2021 under EO 202.87.

Additionally, in order to ensure that the bidding process is fair and transparent, municipalities are encouraged to create a record of the bid opening, document each action taken during the process, and have one municipal official or employee present to witness the bid opening. See, New York State Conference of Mayors’ Coronavirus COVID-19: Resources For Local Government Officials – Public Bidding Openings at:  Resources for Local Government Officials.

III. Remember to Follow All the Other Rules!

All other requirements of General Municipal Law § 103 remain unchanged. Therefore, municipalities must continue to “… publish an advertisement for bids and offers in an official newspaper, if any, or otherwise, in a newspaper designated for such purpose.” General Municipal Law 103(2).  Pursuant to General Municipal Law § 103(2), the advertisement must provide (i) the time and place where the bids received will be “publically” opened and read, and (ii) identify where all bidders/offerors will be publically identified and disclosed. In addition, where the municipality has authorized the receipt of bids and offers in an electronic format, the designation of the receiving device must be provided. Id.

In the event that municipalities elect to hold a non-public bid opening pursuant to EO 202.11, it is important that the notice of advertisement include: (i) the date and time when all bids must be received, opened and read; (ii) that the bid opening will be held in accordance with EO 202.11; (iii) that in-person attendance will not be permitted; and (iv) the website address, public television broadcast channel, videoconference link or similar system, where the public may view or participate in a recording or live stream of the bid opening.

Municipalities should also post these notices on their websites.

IV. COVID-19 – It’s an Emergency, Right?

COVID-19 may be a declared state of emergency, but that does not mean that COVID-19 (in and of itself) automatically qualifies as an “emergency” for emergency procurement purposes under General Municipal Law § 103(4). Under General Municipal Law § 103(4), contracts for public work or the purchase of supplies, material or equipment may be let by the appropriate officer, board or agency of the political subdivision or district without the issuance of an advertisement for sealed bids where: (i) there is an accident, unforeseen occurrence or condition; (ii) that affects public buildings/property or the life, health, safety or property of residents; and (iii) the resulting situation requires immediate action which cannot wait for competitive bidding/offering.  As such, General Municipal Law § 103(4)’s application is strictly limited to procurements necessitated by an emergency that is designated by current and immediate circumstances.

Notwithstanding the forgoing, EO 202 permits school districts, to the extent necessary, to procure and use cleaning maintenance products without first advertising for bids and offers or complying with existing procurement policies and procedures as required under General Municipal Law §§ 103 and 104-b. Beware, however, that EO 202 is limited to procurements necessitated by the declared emergency (i.e. COVID-19). Therefore, a school district could not, for example, purchase a snow plow because of COVID-19. Further, it must be noted that EO 202 does not apply to local governments (i.e. cities, villages, Towns, Counties or other political subdivisions). Therefore, local governments should continue to evaluate all emergency contracts under the criteria set forth in General Municipal Law § 103(4).

V. Procurement Policy Updates

In light of the COVID-19 pandemic, and the transition to virtual government platforms, municipalities should review their procurement policies and consider changes that accommodate electronic and virtual competitive bidding platforms in accordance with EO 202.11 and General Municipal Law § 103(1).

Should you have questions or inquiries regarding General Municipal Law § 103 or procurement, please contact Simone M. Freeman in our Municipal Law Group at 516-746-8000 or sfreeman@jaspanllp.com.

 

With an existing budget shortfall worsened by the pandemic, lawmakers are again pressing to allow mobile sports betting as a means of generating State revenue.

As of today, sports betting is only legal in New York as long as the bettor is physically present on the grounds of certain in-state casinos. By contrast, a mobile sports bet would be placed on a website via an electronic device, such as a computer or cell phone. New Jersey has already passed legislation legalizing this form of betting and, as a result, New Yorkers have been crossing state lines to place bets via their smartphones (geolocation software is utilized to determine whether a mobile bet was placed in-state).

While the idea was proposed in years past, it was always met with staunch opposition from Governor Andrew Cuomo, who cited to the many social ills associated with gambling. The concept also met opposition from casinos, some of which expressed concern that online sports betting would detract from in-person business at brick-and-mortar casinos.

In light of the massive deficit brought on in part by the COVID-19 pandemic, Governor Cuomo appears to have changed his tune. However, under his proposed structure, the casinos are unlikely to sing along. By way of explanation, most states that permit mobile sports betting, including New Jersey, essentially allow casinos to run the operations. By contrast, Governor Cuomo has proposed that the State lottery would be responsible for mobile sports betting.

Even with the backing of Governor Cuomo, mobile sports betting still faces an uphill battle. For one, there is existing gaming compact giving tribal casinos the exclusive right to certain types of gaming in exchange for a percentage of revenues. Moreover, there is a provision of the State Constitution prescribing that sports gambling take place “at no more than seven” casinos, and whether a mobile sports bet takes place “at” a casino has been the subject of debate.

It remains to be seen whether the Governor’s support will provide mobile sports betting the momentum it needs this time around. If so, proponents suggest it may prove a valuable revenue source for the State at a time when a multi-billion-dollar budget gap has the State and its businesses facing tough roads ahead.

 

 

 

 

Purchasing a new home is often one of the biggest moments of a person’s life, whether it is a first home or a “forever home.” Over the past year, restrictions imposed by virtue of the COVID-19 pandemic have interfered with this dream of many. Initially, stay-at-home orders prohibited home showings and in-person closings. Later, low home inventory resulted in weaker purchaser negotiating power given the low supply and great demand triggered by the pandemic.

Despite these uncertain times, governmental restrictions loosened; home viewings resumed; parties negotiated transactions and entered into contracts (with the help of attorneys, of course). And due to these uncertain times, purchasers/borrowers went through the mortgage approval process and found lenders altering their closing requirements based on conditions which arose as a result of the pandemic.  Title companies required sellers to execute additional affidavits and provide indemnities with respect to the lag in county office land departments’ ability to process documents and the title company’s ability to review and retrieve land and court records given reductions in office hours and of in-person staff.

Outside of New York, a closing in New York is generally referred to as a “New York style closing”, meaning a sit-down closing where all parties to the transaction are in a room to sign all documents and deliver all monies associated with completing a closing in accordance with the contract terms.  Given the necessity of social distancing and minimizing in-person contact, it would make sense for the parties to be able to close in a manner which would limit such contact.  However, not all parties to closings have been willing to embrace this concept.

Commercial transactions and out-of-state closings have long embraced the “escrow closing concept.”  The process is easy, reliable, cost-effective and much safer these days by virtue of avoiding physical contact.  There are several ways to conduct such closings but the general process is that required closing documents are signed by all parties and deposited with a trusted escrow agent, such as the title company, funds are wired and once all parties are satisfied, escrow is broken and documents are released to be recorded. There are many variations on this. Parties can be located in different locations and documents can be scanned, reviewed and approved with agreements (called undertakings) and requirements that original documents are delivered or all bets are off.  It is important to note that while electronic signatures can be viewed and approved by parties to the transaction, electronic filings are still not yet permitted or processed in all county offices, so it is imperative that the original documents are sent and make it to their ultimate destination.

Many lenders, attorneys and even individuals have insisted on sit-down closings during the past year, even with the extraordinary health concerns raised by such sit-down closings. Some lenders have insisted their borrowers need to be seen in person to alleviate forgery concerns; some practitioners have insisted that a sit-down closing is necessary because “that’s the way it’s always been done”; some clients have stated they must attend a closing to get the money.

But things are different today. Facetime and Zoom make it easy to physically interact in a socially distant manner which comports with all legal requirements. Wiring of funds alleviates the need for presentation of physical checks (and often results in faster fund availability). Governor Cuomo’s implementation and continuing extension of virtual notarization of documents is further validation that compliance with legal requirements can be completed in a safe manner which effectuates the same end result.  A key component at a closing is that parties present valid, non-expired photo identification, such as a driver’s license or passport. Given all the delays that have resulted in processing and receiving documents during the pandemic, Governor Cuomo’s Executive Order extends the expiration date of all NYS drivers’ licenses and permits so that any license which expired on or after March 1, 2020 remains valid at least through January 1, 2021.

Selling or purchasing any property is a huge endeavor under normal circumstances. It is important to have a trusted advisor who is familiar with current trends available to assist during such an important time. For assistance with your commercial and residential real estate transactions, please contact Leslie Feifer. Leslie is a member of the firm’s real estate practice group, representing individuals and businesses in a wide variety of commercial and residential real estate matters. Leslie can be reached at 516-393-8229 or lfeifer@jaspanllp.com.

 

 

 

 

 

 

 

 

 

 

With New York facing a tremendous budget deficit and business still reeling from the economic shutdown triggered by COVID-19, state and city lawmakers are looking everywhere they can for means to generate revenue, both for the government and for businesses directly.

As of October 2020, New York City restaurants and bars have been allowed to add a “COVID-19 recovery charge” to diners’ bills, excluding takeaway and delivery orders. The measure, which caps the potential surcharge at 10% of the consumer’s total bill, is available to restaurants from the law’s effective date until 90 days from when they can operate at maximum indoor capacity.

A restaurant adding a surcharge to the amount a paying customer owes must disclose the amount of such added surcharge before the food is ordered. The disclosure must be:

  • Written;
  • Explicit that the additional charge is a surcharge and not a gratuity;
  • Clear and conspicuous;
  • On any document, whether in paper or electronic format, that lists the prices for the customer, including but not limited to any paper or electronic menu, catering contract, final customer bill, or customer’s credit card receipt if a credit card is used;
  • In plain English, or in the same language as the rest of the menu, if applicable; and
  • In a font size similar to surrounding text.

Businesses seeking to utilize this surcharge to stay afloat may, however, pay a cost at the other end of recovery. Notably, the surcharge is subject to sales tax, meaning those businesses that fail to charge sales tax at the correct rate on the surcharge may face a sales tax audit – a potential economic boon to government authorities looking to close budget shortfalls by generating tax assessments.

Until the passage of the new measure, the Rules of the City of New York § 5-59 prevented food and beverage businesses from adding surcharges to listed prices, with exceptions for bona fide service charges conspicuously disclosed to consumers before ordering, i.e. mandatory gratuity for large parties or minimum per customer charges.

Perhaps equally publicized are Governor Cuomo’s intentions to revisit the legalization of cannabis as a means of aiding the State’s financial recovery, which has surely gained traction in light of the success of New Jersey’s recent referendum. Cuomo has included legalization in his last two budget proposals, but negotiations fell through both times, with lawmakers unable to agree on how to allocate the tax revenue.

In line with that effort, earlier this year, Governor Cuomo launched a Cannabinoid Hemp Program, through which the State Department of Health filed proposed regulations for the manufacturing and retailing of hemp products in the State. His program is intended to organize and legitimize the cannabinoid market by creating a licensing framework for cannabinoid hemp processors and retailers, and applications for licenses may be available as early as 2021.

Whether any of these measures will suffice as either a means to narrow the budget gap or as a helping hand to businesses remains to be seen.

For further information, please contact David Paseltiner at  dpaseltiner@jaspanllp.com or Jessica Baquet at jbaquet@jaspanllp.com.

 

 

 

 

 

 

 

 

In these times of pandemic, many good people (like essential workers, first responders, and doers of random acts of kindness and charity) continue to help others.   Unfortunately, there are those that continue to prey upon others by casting snares to compromise confidential and sensitive information like social security numbers, credit card numbers, and passwords.

This is generally known as “phishing” and the ordinary citizen would be surprised at the sophistication of these attacks, the simplicity of these attacks, and the effectiveness of attacks on personal data (and $aving$).

Phishing is decades old and, as technology advances, phishing attacks grow exponentially due to the increased accessibility to people and businesses. This article briefly addresses some of the more common phishing attacks and countermeasures.

The Primordial Sea

The early days of phishing featured scams where subjects were approached via email by purportedly jailed African princes looking to reward others for helping “royalty” free their vast fortunes. It took a while for the most greedy prey to realize that they were being scammed. Although similarly themed scams still abound, these days phishing attacks can be much more sophisticated in their approach, look, and feel.

Phisherman’s Tools of the Trade

Yes, the phisherman’s bait box includes worms like malware, link manipulation, “spearphishing” , “spoofed” emails,  and “vishing” and other sophisticated techniques designed to ensnare your private and confidential information. I could author a separate article for each and every one of the numerous traps that can be laid for the unsuspecting person or business. However, this article will serve only as a brief and general description of more prevalent phishing hooks/bait and some common sense wake-up calls and protections to combat the unwanted trawler.

Common attacks include emails that can contain malware and other nasty “launchables”. Attacks can allow the cybercriminal to track your keystrokes, gain access to your data, and authorize your device to run other functions and programs. The criminal casters can “spoof” legitimate vendors. Did you get an email about tracking a surprise FedEx delivery, resetting a password, an “automatic response” from a vendor/email you did not contact, a failed log-in attempt, confirming a purchase, or renewing your virus protection software?  BE CAREFUL!  Also, some phishing emails can blindly extort you by notifying you that your private information or photos have been accessed, and then demand a ransom. For businesses, hackers gain access to key information systems via compromised passwords or other weak IT security protocols, and then cripple the business by shutting down information technology systems until a ransom is paid.  Similar to the old “send me money to help free my fortune” scams, beware general inquiries to your business “info@” email address.   Venture capitalists with millions to invest in your business don’t send general solicitations to “contact us”  email boxes. Although credit card companies and financial institutions greatly enhanced their fraud prevention programs, these programs result in email traffic confirming purchases which means you must increase your diligence to sort out the bona fide notifications.   Set your credit card and banking notifications to low dollar amounts.  Typically, your compromised data will be tested with a small purchase before the “Pretty Woman” shopping spree begins.

We all get unsolicited phone calls at home or on our cell phones.  These calls range from the completely bogus phish to the legitimate business call. Even the calls that are arguably legitimate typically try to sell you on a product or service that you don’t desire (or need) … not to mention automated Chinese language calls (which are typically an attempt to threaten Chinese foreign nationals with deportation unless they pay a fee by phone). The Internal Revenue Service or a criminal/enforcement division of a government agency rarely (if ever) calls first.

The Catch

So, what’s a phisherman desired catch?  Tasty hooked information includes: access to laptops and personal computers, passwords, Social Security numbers, access to bank accounts and credit card numbers, and the equity in your home (with your Social Security number, phisherman can remotely apply for a home equity loan on your house).  Many times, the phisherman sells your information on the dark web.  That’s how they make their money.  The buyer of that info, in turn, makes new credit cards and then sells those cards to the shoppers.  For an entertaining factual accounting of this kind of cybercrime, read Kingpin which chronicles the exploits of a computer hacker who stole access to nearly two million credit card accounts.

Shark Repellants

So, what are some very basic protections that we “phish“ can use to avoid the hook? Here’s a brief list of some anti-phishing tactics:

* Never provide your Social Security number or any private or confidential information if you have any doubts.

* Regularly change your passwords. Make your passwords somewhat complex by using numbers and symbols and a mix of both upper case letters and lower case letters. Never use the same password for different vendors, websites or financial institutions (otherwise one password breach will ripple through your pond of privacy and financial protection). Use a secure password keeper on your cell phone to track and keep all your relatively complex passwords. Try to have a backup for that password keeper just in case your phone fails. Don’t let anyone know what your passwords are or where you keep your passwords. All this is worth the risk of the outrage of your teenage children when they can’t instantaneously access Netflix.

* Don’t click on suspicious email embedded links.  This is not Storage Wars and the link won’t likely bring you to a storage locker full of goodies.

* Don’t store credit card numbers on websites.  Otherwise, you are trusting that vendor’s security protocols.

* If you think there is a remote chance that the request for information is for a legitimate reason, don’t reply to an email, don’t click on any embedded link, and (in the case of a phone call) hang up the phone first. Then, find out the legitimate contact information of the subject vendor, confirm that contact information, and then call them directly (or visit their website via your own direct search).

* In the case of apparent spoofed emails, run your cursor over the sender’s email address. If the email shows to be a gmail account or a strange looking email address with lots of numbers and/or a suffix not related to the vendor, delete the email. In fact, it’s probably good practice to permanently delete anything you suspect as being fraudulent. If you feel like a credit card alert could be legit, where possible, download the financing institution’s bona fide app to your phone and monitor your purchases via secure application.

* On your cell phone, each time you get one of these unsolicited phishing calls, block the number. For me, this reduced the number of anonymous Chinese calls and requests to extend car warranties by over half. You can block numbers both on your cell phone and, if your home phone number is supported by VOIP, you can also block numbers via your service provider’s website (I know that Optimum allows you to do this). Using the national Do Not Call Registry is a good idea (www.donotcall.gov).

* Add a credit monitoring app to your phone. Credit Karma is pretty good. If your information has already been compromised (for example if a large financial institution’s database was breached and your Social Security number is out there), upgrade to a monthly subscription service that’s more aggressive in its monitoring. In addition, by contacting any of the four major credit agencies (EquiFax, TransUnion, Innovis and Experian), you can put a personal “credit freeze” in place. With a credit freeze in place at any one of the major agencies (the agencies share freezes with each other), no third-party can pull credit on you without having the freeze lifted which can only be done by your action. The https://www.OptOutPrescreen.com service protects from unauthorized credit checks. Thus, you won’t get a surprise home equity loan on your house or a Best Buy credit card in your name for the purchase of an entirely new suite of kitchen appliances shipped elsewhere. Yes, it adds an extra level of diligence when you want to use new credit financing for your own situation (for example, a new car lease), but the protection is sound.  By the way, as a general rule, you are not responsible for fraudulent credit card purchases.

* Ignore general solicitations for investment in your business through people you don’t know. Share information only after vetting a third party, then seek out an attorney to draw an appropriate confidentiality agreement for your business which includes a no-solicit provision.  If a legitimate someone is truly interested in investing in your business, they will find you through more direct business introductions.

* Yes, we all want to increase our social networking profile. BUT, accepting a new friend or a new LinkedIn contact may come at a cost. Take the time to figure out truly whether you know this person or whether networking with them will be beneficial (after briefly vetting the background through publicly available tools).

* Don’t engage anonymous extortionists or blackmailers (unless they separately convince you that they do truly have the goods on you and, in which event, consider hiring a private detective, lawyer and reaching out to the police).

* I know this next one’s going to be a downer… BUT … resist the temptation of pranking back the anonymous caller or emailer. As much fun as it could be to spend a half hour on the phone messing with a  telemarketer or replying to unsolicited email with a “Get lost!” (or less nice words), why make yourself a target for a sophisticated hacker type?

* For businesses, train your employees and make them savvy about the items we discussed. They too should not click on any potential spoofing emails on business devices. Teach them to report any potential incursions to your IT department. Discourage (or prohibit) Internet browsing from company devices. Make sure that employees regularly change passwords.  Challenge your employees to safely store passwords (rather than on Post-its attached to computer monitors).

* Yes, all of our time is precious, but putting two factor authorization on websites and applications is great protection.

* SHRED, SHRED, and SHRED some more.  While reviewing your (snail) mail, sort it.  When done, SHRED all mail that contains personal information.  Credit card company flyers enticing you to apply for a new card typically no longer allow third parties to use that flyer/application to open credit in your name….but…SHRED THEM ANYWAY.  Using  https://www.OptOutPrescreen.com can also reduce your junk mail.

* There are websites (like www.scambusters.org)  that can help you debunk myths and check for phishes and scams. If you are presented with an email or phone call that’s suspicious, take the time and describe the suspicious request and add the word “scam“ or “phish“ to a Google search.  You can also Google the sender’s email or phone number (again, with the word “scam”).

* Listen to your “Little Voice”.  One of my favorite TV shows in the 80s was Magnum, P.I.  Solving mysteries, Thomas Magnum always listened to his “little voice”… which was his intuition barking at him.  If somethings seems suspicious or too good to be true, listen to your intuition and back it up with logical analysis.

*DON’T PANIC.  “Little Voice” or no “Little Voice”, slow down and think clearly.

Those are just some basic tactics that you can take to stay off the hook and protect your privacy and wallet. Remember, as we get smarter, phishermen get more creative.  Stay vigilant!

For more information, please contact Robert Londin.

 

 

 

LIBOR (the London Inter-bank Offered Rate) is an interest rate benchmark published by ICE Benchmark Administration Limited that is used as a reference rate for a wide range of financial transactions. It is a common floating rate interest option for corporate borrowers, who may pay interest on loans based on LIBOR (usually with a margin in excess of LIBOR).

LIBOR has dropped dramatically since the start of the COVID-19 pandemic. For example, one month LIBOR (based on the US Dollar) was approximately 2.5% in early January 2019. While there had been a decrease to approximately 1.8% in late December 2019, and a further slide to 1.7% in mid-February 2020 and 1.6% in late February, by March 12 one month LIBOR had plummeted to .7%. After a slight recovery to 1% by the end of March, this rate decreased to below .2% in early May and has remained there ever since. Rates for other LIBOR periods have seen similar declines, with overnight rates at near zero percent since early April.

Although LIBOR is very likely to be replaced as a reference rate after 2021 (see our blog article at NY Business Law ), there are still many months to go before this happens. In the interim, one area of concern for lenders has been the absence of LIBOR floors in a near-zero rate environment. While language providing for LIBOR to be deemed zero if it would otherwise be negative has been common for some time, the number of loans with floors above zero, and the floor level, have both increased after first quarter 2020.

The following is a summary of LIBOR floors included in loan agreements filed on EDGAR since the start of the year[1]:

 

Quarter of 2020 # of Loans (revolving and/or term) % with Floors % with 0% Floor % with >0% and <.5% Floor % with  .5% Floor % with >5% and <1% Floor % with 1% Floor % with >1% Floor
First 80 100% 90% None 1.25% 1.25% 5% 2.5%
Second 110 94.5% 45.5% 2.7% 8.2% 18.2% 17.3% 2.7%
Third 88 96.6% 44.3% 5.7% 8.5% 10.8% 23.9% 3.4%

The third quarter of 2020 breaks down as follows:

Month # of Loans (revolving and/or term) % with Floors % with 0% Floor % with >0% and <.5% Floor % with  .5% Floor % with >5% and <1% Floor % with 1% Floor % with >1% Floor
July 30 93.3% 36.7% 3.3% None 16.7% 30.0% 6.7%
August 30 100% 53.3% 3.3% 15.0% 8.3% 16.7% 3.3%
September 28 96.4% 42.9% 10.7% 10.7% 7.1% 25% None

As is clear from the quarterly figures above, deals with a zero percent LIBOR floor have decreased by 50% since first quarter 2020, with floors of 1% or greater having a significant increase during this period. The trend towards 1% LIBOR floors will likely continue in the coming months.

[1] Source: Practical Law.

David Paseltiner is chair of the firm’s corporate and commercial transactions practice group and a member of its banking and financial services practice group. He represents businesses in a wide variety of industries, ranging in size from small start-up operations. He also represents individuals in connection with employment agreements, shareholders agreements and operating agreements. David can be reached at 516-393-8223 or dpaseltiner@jaspanllp.com.

Jaspan Schlesinger LLP partner Robert Londin will moderate the fourth episode of a five-part webinar series dedicated to private Mergers and Acquisitions transactions.  The series spans from early transaction concerns and planning to key provisions of transaction documents, and Rob serves as moderator for the entire series.   “On to the next; we recently concluded episode number three which addressed the general M &A process.  Episode number four tackles deal points arising in connection with post-closing matters” noted Robert Londin of the JSLLP Corporate and Commercial Transactions Group.  Episode Four of the series from Financial Poise debuts on the West LegalEd Center on November 5, 2020.  In addition, Robert agreed to moderate the five-part 2021 M &A Boot Camp Series as well as the 2021 three-part Start-Up/Small Business Advisor series.  Both series are presented by Financial Poise debuts on the West LegalEd Center.

For more about Robert Londin, CLICK HERE:  Robert Londin partner, Jaspan Schlesinger LLP

For information about the Financial Poise M&A webinar series episode, CLICK HERE:

http://www.prweb.com/releases/financial_poise_announces_post_closing_issues_buyer_seller_disputes_a_new_webinar_premiering_november_5th_at_2_00_pm_cst_through_west_legaledcenter/prweb17468578.htm

On October 2, 2020, the Small Business Administration (SBA) issued a long awaited Procedural Notice providing guidance with respect to a change of ownership of businesses that borrowed Paycheck Protection Program (PPP) loans. PPP loans were made commencing in early April, and since then we have witnessed first-hand the frustration experienced by business owners having to deal with the uncertainty of the treatment of PPP loans in the context of a change of ownership (often compounded by the inability of PPP lenders to accept forgiveness applications). The new guidance provides sellers with some certainty with regard to the procedures for selling a business that has borrowed a PPP loan.

What is a Change of Ownership?

For purposes of the PPP, a “change of ownership” is considered to have occurred when (1) at least 20% of the common stock or other ownership interest of a PPP borrower (including a publicly traded entity) is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity, (2) the PPP borrower sells or otherwise transfers at least 50% of its assets (measured by fair market value), whether in one or more transactions, or (3) a PPP borrower is merged with or into another entity. For purposes of determining a change of ownership, all sales and other transfers occurring since the date of approval of the PPP loan must be aggregated to determine whether the relevant threshold has been met. For publicly traded borrowers, only sales or other transfers that result in one person or entity holding or owning at least 20% of the common stock or other ownership interest of the borrower must be aggregated.

While not clearly stated in the guidance, it would appear that a transaction that does not satisfy one of the change of ownership descriptions above does not constitute a “change in ownership” subject to determination of whether SBA consent is required, and presumably, no consent of SBA is required with respect to such transaction.

Does an Indirect Change of Ownership Require SBA Consent?

A PPP borrower may be owned by one or more entities, each of which may also be owned by multiple individuals or other entities. The SBA form of note does not specify whether a change of ownership (which the form provides is a default absent lender consent) applies only to direct ownership interests or would include indirect ownership interests, although the PPP loan application only required reporting of direct ownership interests in the borrower. As a result, the general understanding has been that only changes in direct ownership interests were covered by PPP loans.

The Procedural Notice does not address this issue. The term “common stock or other ownership interest” could be meant to refer to stock or other interests such as partnership or limited liability company interests or other forms of direct equity issued by the PPP borrower. Alternatively, “other ownership interest” could be meant to cover indirect interests, such as ownership of a corporation that itself owns an interest in the borrower. Further guidance from SBA will be needed in order to provide a definitive answer as to whether the change of ownership requirement is limited to direct ownership of a PPP borrower or is meant to include indirect ownership changes. Guidance as to the meaning of “other ownership interests” would also be helpful in determining whether a “change of ownership” has occurred.

Does Notice of the Change of Ownership Need to Be Given?

Yes, prior to the closing of any change of ownership transaction, the PPP borrower must notify the PPP lender in writing of the contemplated transaction and provide the PPP lender with a copy of the proposed agreements or other documents that would effectuate the proposed transaction.

Is SBA Consent Required for a Change of Ownership?

There are no restrictions on a change of ownership if, prior to the closing, the PPP loan has been fully satisfied, either by the borrower repaying the PPP loan in full, or by the SBA having remitted funds to the PPP lender in full or partial satisfaction of the PPP loan with the PPP borrower repaying any remaining balance in the case of partial satisfaction by the SBA. The guidance does not allow for transactions where the pay-off occurs simultaneously with or immediately after consummation of a change in ownership transaction. Accordingly, transactions should be structured to cause the pay-off to occur prior to consummation of the other components of the sale.

If the PPP loan is not fully satisfied as described above prior to the closing of the change of ownership, then the SBA’s consent will be required unless the PPP borrower or the terms of the transaction satisfy the applicable conditions set forth below.

  1. Sale of Stock/Ownership Interest or Merger. The PPP lender may (but apparently is not required to) approve the change of ownership and SBA’s prior approval will not be required if the following conditions are met for a change of ownership structured as a sale or other transfer of common stock or other ownership interest or as a merger:

(i) The sale or other transfer is of 50% or less of the common stock or other ownership interest of the PPP borrower (in determining whether a sale or other transfer exceeds this 50% threshold, all sales and other transfers occurring since the date of approval of the PPP loan must be aggregated), or

(ii) the PPP borrower completes a forgiveness application reflecting its use of all of the PPP loan proceeds (partial use doesn’t appear to be permitted) and submits it, together with any required supporting documentation, to the PPP lender, and an interest-bearing escrow account controlled by the PPP lender is established with funds equal to the outstanding balance of the PPP loan. After the forgiveness process (including any appeal of SBA’s decision) is completed, the escrow funds must be disbursed first to repay any remaining PPP loan balance plus interest. Note that the guidance requires the escrow account to be interest bearing, and while funding the full amount of the PPP loan with accrued interest into a non-interest bearing account would seem to be an acceptable alternative, the guidance doesn’t provide for it. The guidance doesn’t require a particular party to fund the escrow, or address what becomes of the escrow funds should the PPP loan be forgiven. Presumably this would be addressed between the buyer and seller, and the ultimate disposition of the escrow funds would be documented in the escrow agreement.

  1. Asset Sale. The PPP lender may (but, again, is apparently not required to) approve the change of ownership and SBA’s prior approval will not be required for a change of ownership structured as an asset sale involving 50% of more of the seller’s assets if the PPP borrower complies with the provisions of clause (ii) above. Unlike the situation where SBA approval is required (see discussion below), assumption of the PPP note by the buyer is not a condition to utilizing this escrow exception, and whether or not the buyer assumes this liability will be a function of the negotiations between the buyer and the seller.

The guidance does not address the fact that many PPP lenders are not accepting forgiveness applications at this time, meaning that their PPP borrowers will not be able to satisfy the escrow requirement.

What is the Procedure for Obtaining SBA Consent?

If a change of ownership of a PPP borrower does not meet the conditions set forth above, prior SBA approval of the change of ownership is required and the PPP lender may not unilaterally approve the change of ownership. To obtain SBA’s prior approval of requests for changes of ownership, the PPP lender must submit the request to the SBA. The request must include:

(i)           the reason that the PPP borrower cannot fully satisfy the PPP loan or provide the escrow funds as described above;

(ii)          the details of the requested transaction;

(iii)         a copy of the executed PPP note;

(iv)         any letter of intent and the purchase or sale agreement setting forth the responsibilities of the PPP borrower, seller (if different from the PPP borrower), and buyer;

(v)          disclosure of whether the buyer has an existing PPP loan and, if so, the SBA loan number; and

(vi)         a list of all owners of 20 percent or more of the buyer.

SBA approval of any change of ownership involving the sale of 50% or more of the assets of a PPP borrower will be conditioned on the buyer assuming all of the PPP borrower’s obligations under the PPP loan, including responsibility for compliance with the PPP loan terms. In such cases, the purchase agreement must include appropriate language regarding the assumption of the PPP borrower’s obligations under the PPP loan by the buyer, or a separate assumption agreement must be submitted to SBA. If deemed appropriate, SBA may require additional risk mitigation measures as a condition of its approval of the transaction. The SBA will review and provide a determination within 60 calendar days of receipt of a complete request. PPP borrowers considering change in ownership transactions where SBA consent may be required are advised to seek such consent as early as possible.

While the guidance doesn’t address this issue, if a PPP consummates a change of ownership without having obtained SBA consent, it would likely result in a default under the applicable PPP note (as noted above, the SBA form 7(a) note provides that a change of ownership is a default without PPP lender consent, and a PPP lender will not consent without the required SBA approval), pursuant to which the PPP loan could be declared due and payable. In addition, although not stated in the guidance, such failure would likely result in denial of forgiveness of the PPP loan.

Continuing Obligations

Regardless of any change of ownership, the PPP borrower remains responsible for (1) performance of all obligations under the PPP loan, (2) the certifications made in connection with the PPP loan application, including the certification of economic necessity, and (3) compliance with all other applicable PPP requirements. Additionally, the PPP borrower remains responsible for obtaining, preparing, and retaining all required PPP forms and supporting documentation and providing those forms and supporting documentation to the PPP lender or to SBA upon request.

Terms Applicable to All Sales

For all sales or other transfers of common stock or other ownership interest or mergers, whether or not the sale requires SBA’s prior approval, in the event of a sale or other transfer of common stock or other ownership interest in the PPP borrower, or a merger of the PPP borrower with or into another entity, the PPP borrower (and, in the event of a merger of the PPP borrower into another entity, the successor to the PPP borrower) will remain subject to all obligations under the PPP loan. In addition, if the new owner uses PPP funds for unauthorized purposes, SBA will have recourse against the owner for the unauthorized use.

In addition, if any of the new owners or the successor arising from such a transaction has a separate PPP loan, then, following consummation of the transaction: (1) in the case of a purchase or other transfer of common stock or other ownership interest, the PPP borrower and the new owner are responsible for segregating and delineating PPP funds and expenses and providing documentation to demonstrate compliance with PPP requirements by each PPP borrower, and (2) in the case of a merger, the successor is responsible for segregating and delineating PPP funds and expenses and providing documentation to demonstrate compliance with PPP requirements with respect to both PPP loans.

The guidance requires the PPP lender to notify the SBA, within five business days of completion of a sale transaction (regardless of whether it requires SBA approval), of the (i) identity of the new owners of the common stock or other ownership interest; (ii) the new owner’s ownership percentage; and (iii) the tax identification number for any owner holding 20 percent or more of the equity in the business; and (iv) location of, and the amount of funds in, the escrow account under the control of the PPP lender, if an escrow account is required. While the guidance does not expressly require the PPP borrower to provide this information to the PPP lender, as a practical matter it will likely be required to do so in connection with obtaining the lender’s consent as required under the PPP note.

*******

While the SBA’s guidance is useful, as has been the case with much of the PPP regulations, some questions do remain. In particular, if the SBA’s consent to a sale is not required, is the PPP lender required to consent (assuming its loan documents require such consent prior to a sale)? Use of the words “may consent” would indicate that the lender is not required to do so, even if the escrow arrangement described above is implemented and the SBA’s consent is not required. If the PPP lender is required to consent, on what basis can they refuse to do so? Is a PPP lender required to agree to an escrow arrangement if the borrower request it to do so? Is this guidance meant to apply retroactively? How are sales that have been consummated going to be treated? What reasons will the SBA accept for not repaying the PPP loan or establishing an escrow? How does this work if the PPP borrower has not used all of the PPP loan proceeds?

In any event, we advise all PPP borrowers seeking to consummate a sale of their business to review their PPP loan documentation, as it may contain different or additional requirements applicable to their sale transaction.

For further information or guidance on this matter, please contact David Paseltiner.

 

 

 

 

As you are aware, LIBOR (London Interbank Offered Rate) is due to phase out by the end of 2021. Currently, many companies in the United States use LIBOR as a benchmark for various commercial and financial contracts, including corporate and municipal bonds and loans, floating rate mortgages, asset backed securities, consumer loans, and interest rate swaps and other derivatives. In transitioning away from LIBOR, the Alternative Reference Rates Committee (ARRC), a committee comprised of a group of market participants to identify an alternative reference rate for use primarily in derivative contracts, has selected Secured Overnight Financing Rate (SOFR) as the proposed representative rate. See https://www.theice.com/iba/libor for a more in depth look at LIBOR and the transition.

The onset of coronavirus (COVID-19) disrupted the world as we know it. The transition away from LIBOR is already a difficult process posing multiple risks. Now throw in a pandemic. A report done by Moody’s Investors Services, states COVID-19 has delayed the efforts of transitioning. They further report that market participants have been addressing other needs rather than LIBOR transition efforts. For example, the U.S. Fed used LIBOR instead of an alternative reference rate for the Main Street Lending Program during COVID-19. The Main Street Lending Program supports lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the pandemic. LIBOR was used because “quickly implementing new systems to issue loans based on SOFR would require diverting resources from challenges related to the pandemic.” If market participants and firms are addressing their efforts elsewhere it makes sense that an already difficult transition exacerbated by COVID-19 demands a delay, right? Not so much.

The ARRC published the following response in July, 2020 with respect to how COVID-19 influenced the end of the 2021 expiration date: “The ARRC recognizes that near-term, interim steps may be delayed given the current economic environment with the global pandemic…it remains clear that the financial system should continue to move to transition by the end of 2021.” But, how does something like a pandemic not yield an extension or delay? The Financial Conduct Authority (FCA) already extended the use of the LIBOR benchmark to be used in new loans until the end of March, 2021, originally set to expire in September 2020.  So will there be another extension? As of now there has been no mention of any further delays. Some believe there is no excuse to not have an alternative reference rate in place since the world has been on notice since 2017. In May, 2020, Chris McHugh, director, Centre for Sustainable Finance, London Institute of Banking and Finance discussed how banks were advised in 2017 to begin transition and “unless there is some systemic or prudential reason as to why it makes sense for regulators to delay, then the transition should continue as planned.” This statement suggests the notion that a pandemic is not a systemic or prudential reason for a delay. Furthermore, the Financial Stability Board (FSB) released a press statement on July 1, 2020 that encourages going forward with plans to transition away from LIBOR. While the FSB recognizes that some firms will encounter temporary delays, they stipulate that “financial and other firms should continue to ensure that their transition programs enable them to transition to LIBOR alternatives before end-2021.” Hence, institutions should continue their efforts in moving toward adopting alternative reference rates, if they have not already.

In the age of COVID-19 nothing is certain. Only time will tell how market participants are using their resources. In the meantime, institutions should continue their efforts in moving toward an alternative reference rate since it looks like the pandemic will not allow Libor to stay around much longer than planned.