COVID-19 Update: FAQ and Other Information for Clients

Articles Tagged with Business

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Businesswoman waving with right hand and holding briefcase in left.On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flex”) was signed into law. PPP Flex was designed to limit some of the restrictions and provide clarification for the original Paycheck Protection Program (“PPP”).

Notably, PPP Flex grants borrowers additional time to incur costs that count towards PPP loan forgiveness, reduces the portion of cost that must be allocated to payroll cost, and provides additional exemption from the Coronavirus Aid Relief, and Economic Security Act (the CARES Act”), the legislation that authorized PPP.

The CARES Act provides that some or all of the borrower’s PPP loan maybe forgiven based on the cost and payments made during what is called the “Cover Period.” The Cover Period begins when the PPP loan is disbursed or, if the borrower elects, from the start of the first regular payroll after the PPP loan is first disbursed. The Cover Period was originally set to be eight (8) weeks; however, under the PPP Flex, the Cover Period may be extended to the earlier of twenty-four (24) weeks after the loan origination or December 31, 2020. Nothing precludes an existing PPP loan borrower from using the original 8-week Cover Period. Under PPP Flex, the percentage that the borrower must use for payroll costs to be eligible for forgiveness was reduced. With the SBA’s final interim rule setting the percentage at 75%, legislators have reduced the amount to 60%, such that now 40% of the loan may be used (during the Cover Period) for certain permitted non-payroll costs such as mortgage interest, rent and utilities. PPP Flex also extends the original 6-month deferral period to up to 10 months after the applicable Covered Period, and extends the maturity date of unforgiven portions of the loans to five (5) years from the date of the forgiveness application.

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Woman holding book and thinkingWhile shelter-in-place and other restrictions on business remain in effect due to the pandemic, many expect re-openings (whether gradual, on a timeline, based on industry, or otherwise) are imminent.  If you have not adhered to the old adage to “learn from the past lest it repeat itself” maybe now is a good time to review some of your company policies. Continue reading →

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Hands typing on laptop. Profiles of individuals are coming out of computer to give the illusion of networking/virtually meeting. Coffee cup is on left-hand side and notebook is on right-hand side.In Delaware, Governor John C. Carney issued a Declaration of State of Emergency in connection with the ongoing coronavirus pandemic.  This month, the Declaration was modified (the Tenth Modification) to address the numerous shareholder meetings to be noticed for Delaware companies. The Tenth Modification, acknowledging that physical gatherings are explicitly discouraged, advise that shareholder meetings be held remotely for the “safety, health and wellbeing of participants”.

Corporations are permitted to adjourn their physical meetings or move to a remote format, provided that certain steps are taken if the date and/or “location” (yes, virtual) are being changed.  Pursuant to § 232 of Title 8 of the Delaware Code, notice of stockholder meetings is usually given through mail, courier service, or email – but the Securities and Exchange Commission is currently allowing companies to provide certain notices via required public filings and press releases. Consequently, to effectuate the change of an annual meeting to a remote format, Delaware corporations should file this notice with the SEC and issue a press release on their websites immediately afterwards.

Although Delaware law already does generally provide that corporations are allowed to hold stockholder meetings remotely, these provisions (e.g. the board of directors has the discretion to decide upon a remote meeting) must be in the corporation’s organizational documents. Consequently, the Tenth Amendment contains crucial provisions for those corporations whose organizational documents may not have been as explicit on these issues. The other provisions of 8 Del. C. § 211, such as the “reasonable measures” to verify the presence and participation of stockholders/proxyholders, as well as record-keeping, have not been changed by the Tenth Amendment.

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Illustration of lockAdditional Executive Orders geared towards limiting the spread of COVID-19 implemented by Governor Phil Murphy over the weekend including EO122 and 125, providing further restrictions on essential-business (retail stores and construction operations) to ensure the safety of their employees and consumers. Notably, the orders also provide for safety measures required to be taken consumers.

Among other mandates, the NJ retail businesses must now limit stated occupancy by 50% (“food businesses” are to maintain a 10% capacity, however) and provide operating hours solely for high-risk populations as defined by the CDC. Continue reading →

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Illustration of hand completing loan application on clipboard

Friday brought us significant federal legislation in response to the COVID-19 crisis in the form of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). In today’s update, we focus on the (likely significant) relief the Act may afford to our small business clients by opening up, and possibly forgiving repayments of, loans under Section 7(a) of the Small Business Act.

In an effort to incentivize businesses to keep employees on their payrolls during the pandemic, despite an unprecedented number of health-related business closures, the CARES Act provides Continue reading →

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In the June 20, 2019 edition of The Legal Intelligencer, Edward Kang, Managing Member of KHF wrote “Piercing the Corporate Veil Under Pennsylvania Law.”

In its simplest form, the piercing of the corporate veil is an equitable remedy available to the creditors of corporate entities to request the court to hold their owners liable for the corporate debts. The underlying cause of action against the corporate entity could be a contract or tort action, none of which is attributable to its owners. For the creditors, the veil-piercing is desirable as their last resort to recover their damages while for the owners, it is detrimental as it exposes them to the type of liability that they wished to exonerate themselves from by forming a company in the first place. These two competing interests drive the forces behind the state laws on substantive elements and procedural requirements for veil-piercing: the more favorable the state policy is toward preserving limited liability, the harder it is under the state law for the court to disregard corporate entity, and the other way around. Pennsylvania law adopted a “strong presumption” against veil-piercing, see Stephen B. Presser, “Section 2:42.Pennsylvania, in Piercing the Corporate Veil,” (last updated July 2018).

Substantive Elements

Pennsylvania state and federal courts applying Pennsylvania law has long listed a vast set of factors that the court may consider in its decision to disregard the corporate shield, including, among others, using the corporate form as a sham to pursue fraudulent or illegal activities or to cause injustice, ignoring corporate formalities, undercapitalizing the company and exerting control to influence the corporate decisions and actions for personal interests. Continue reading →

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In the January 3, 2019 edition of The Legal Intelligencer, Edward Kang, Managing Member of KHF wrote “Defending Officers and Directors From a Lawsuit by the Company.

When a corporate director or officer is sued by a third party for alleged misconduct carried out in her capacity as director/officer, the company generally indemnifies the director/officer by defending her against the lawsuit. The company’s duty of indemnification arises from both the law and governing corporate documents (e.g., articles of incorporation, bylaws or employment agreement). While there are limited exceptions to the company’s duty of indemnification—e.g., the director/officer acted in her personal capacity or that she acted in bad faith against the interest of the company—the duty of indemnification is broad. The company must defend the director/officer, at least until the court determines otherwise. What protection does a corporate director/officer have, however, if the person suing her is the company itself?

A company sues its officer or director more frequently than many people think. The company could bring a direct lawsuit against an officer or director for a breach of fiduciary duty (e.g., alleged self-dealing). Sometimes, a shareholder could bring a derivative lawsuit under the company’s name against the officer or director. Continue reading →

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In the November 8, 2018 edition of The Legal Intelligencer, Edward T. Kang, Managing Member of KHF and Kandis Kovalsky, Associate of KHF, co-authored “When Noncompete Agreements Involve Competing Laws.”

In situations where employers also make their employees, or certain employees, agree to restrictive covenants, particularly noncompetes, companies expect the same uniformity and predictability regarding their enforceability as to each employee, regardless of where the employee works or lives. Employees, on the other hand, often expect (as we learned through a recent case) that even with another state’s choice of law provision, they will still be afforded the protection of the laws of their own state. This disconnect is no clearer than where non-California headquartered companies hire California residents as employees and require them to sign noncompetes governed by another state’s law. In California, noncompete agreements are generally unenforceable (with some limited exceptions). This is well-known, particularly by California residents. So, what happens in this situation if the California employee violates their noncompete? Continue reading →

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Beer
In June, the New Jersey Attorney General’s Office announced the largest fine ever imposed upon a beer wholesaler by the Division of Alcoholic Beverage Control.[1]  The Hunterdon Brewing Company (“Hunterdon”) agreed to a fine of $2 million to avoid a suspension of its license in light of allegations that it committed trade practice violations.[2]  Beer wholesalers such as Hunterdon act as intermediaries between brewers and retailers by purchasing beer from craft breweries such as Dogfish Head, Weyerbacher, and Avery and reselling the beer to retailers such as bars and restaurants.  Chief among Hunterdon’s alleged trade practice violations was its alleged sale of draft beer tap systems at “below fair market prices” in violation of N.J.A.C. 13:2-24.1.[3]

The regulations Hunterdon is said to have violated are part of a three-tier distribution system that was established by most states in the aftermath of prohibition.[4]  The three-tier distribution system, which traces its origins to a study entitled Toward Liquor Control that was financed by John D. Rockerfeller, Jr., a noted teetotaler, creates a separation between alcohol manufacturers and retailers.[5]  As a result, wholesalers like Hunterdon exist to act as intermediaries between brewers and bars for the sale of beer.

Toward Liquor Control, in no hidden terms, made clear that its goal was to limit alcohol consumption by making the sale of alcohol difficult and expensive.[6]  As part of this scheme to increase the price of alcohol, three-tier distribution systems 1) prohibit direct sales from manufacturers to retailers, and 2) limit the ability of brewers and wholesalers to incentivize retailers to carry their products.[7]

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