United States: Corporate News Roundup 4/25/16: Modernizing Regulation S-K; DOJ Sues ValueAct; PE Funds Found Liable For ERISA Withdrawal Liability; Proposed Amendments To DGCL

This edition of the Corporate News Roundup includes an SEC concept release aimed at modernizing Regulation S-K, DOJ's antitrust lawsuit against ValueAct for failing to comply with the HSR Act, a federal court decision holding private equity funds liable for their portfolio company's ERISA withdrawal liability and the Delaware Bar Association's latest proposed amendments to the DGCL.


In April 2016, the SEC issued a concept release soliciting public comments on modernizing and improving certain business and financial disclosure requirements under Regulation S-K, which applies to registration statements, periodic reports, proxy statements and other SEC filings. As part of the SEC's "Disclosure Effectiveness" initiative, the release considers how the readability and navigability of company disclosures could be improved, entertains the idea of semi-annual reporting in lieu of quarterly reporting, contemplates the appropriateness of scaled and line-item disclosure requirements and addresses alternative methods for presenting and accessing disclosures, as well as ways to reduce disclosure repetition (for example, by allowing disclosers to omit required information from filings when information is available on a discloser's website). For more information, please read here.


FASB recently released Accounting Standards Update 2016-09, which modifies certain aspects of employee stock-based payment accounting. The new rules permit stock-based withholding up to the maximum statutory tax rates and require recording of the tax effects of stock-based payments at settlement or expiration on a company's income statement. They also allow a company to make a company-wide accounting policy election to estimate the number of awards expected to vest (or account for forfeitures when they occur), and permit non-public companies to make a one-time accounting policy election to measure all liability-classified awards at intrinsic (instead of fair) value. The new rules go into effect for annual reporting periods beginning after December 15, 2016 (and interim reporting periods within such annual periods) for public companies, and annual reporting periods beginning after December 15, 2017 (and interim reporting periods within annual periods after December 15, 2018) for all other entities. For more information, please read here.


The U.S. Department of Justice recently filed a civil antitrust suit against ValueAct for failing to comply with reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which imposes such requirements upon certain transactions so that the DOJ and FTC can complete antitrust reviews. Following the announcement by Halliburton and Baker Hughes – two of the three largest providers of oilfield products and services in the world – of their plan to merge, ValueAct purchased more than $2.5 billion of voting shares in Halliburton and Baker Hughes without complying with the notification requirements of the HSR Act. According to the DOJ complaint, ValueAct purchased the shares with the intent to influence the companies' business decisions in connection with the merger, and, accordingly, ValueAct could not rely on the limited "investment-only" exemption. For more information, please read here.


A U.S. District Court recently held two private equity funds jointly liable under the Employee Retirement Income Security Act of 1974 for the withdrawal liability of one of the funds' bankrupt portfolio companies. The court concluded that the funds' relationship with the portfolio company satisfied the "trade or business" and "common control" criteria for purposes of determining ERISA liability for multiemployer pension fund obligations. The court reached its decision based on facts that included direct involvement by the funds in the portfolio company's management and the funds' receipt of offsets against management fees that were not available to other investors. This ruling questions the standard practice of structuring investments between multiple independently managed funds to limit exposure to portfolio company liabilities, and could have a significant effect on investments in portfolio companies with obligations to multiemployer pension plans. For more information on the Sun Capital Partners III, LP v. New England Teamsters and Trucking Industry Pension Fund case, please read here.


In March 2016, the SEC's Division of Corporation Finance released a new compliance and disclosure interpretation (CD&I) in response to a question asking specifically how a registrant must describe a Rule 14a-8 shareholder proposal on a proxy card. In its response, the Division indicated that the proxy card should clearly identify and describe the specific action on which shareholders will be asked to vote. For example, the CD&I indicates that "a shareholder proposal on special meetings" would insufficiently describe a shareholder proposal to amend the bylaws for the purpose of allowing shareholders holding 10% of common stock to call a special meeting. For more information, please read here.


As part of its annual "SmartCheck Week," the U.S. Commodity Futures Trading Commission (CFTC) recently emphasized that investors should check the background of financial professionals at least annually. According to the CFTC, only 22% of investors check to determine if their financial professionals hold current licenses or are registered with a government or regulatory organization, and even fewer investors (16%) check on past violations. The CFTC reminded investors to complete background checks on their financial professionals both prior to the initial financial investment and on an ongoing basis. For more information, please read here.


The Delaware Court of Chancery recently reaffirmed that a stockholder's percentage of equity ownership in a Delaware corporation is not the sole criterion for concluding whether or not a stockholder "controls" the corporation. The Delaware court stated that the determination of "control" is a fact-specific analysis of a stockholder's actual influence over a majority of the corporation's board of directors. Minority stockholders had alleged that a 26% minority stockholder was a controlling stockholder who had sought to "squeeze out" minority stockholders and seize the corporation's value for itself. In denying the motion to dismiss breach of fiduciary duty claims, the court found that the plaintiffs had pled sufficient facts to demonstrate that a majority of the board of directors was under the actual control and influence of the minority stockholder, notwithstanding that the stockholder only held a 26% equity ownership stake. For more information on the Calesa Associates, L.P., v. American Capital, Ltd. case, please read here.


The Corporate Council of the Corporation Law Section of the Delaware State Bar Association recently proposed amendments to the Delaware General Corporation Law (DGCL). The amendments would require courts to dismiss de minimis DGCL Section 262 appraisal claims in certain public company transactions, and would allow corporations to make payments to appraisal claimants prior to appraisal proceeding judgments in order to limit the accrual of statutory interest. If enacted, most of the amendments would go into effect on August 1, 2016. For more information, please read here.


The Financial Industry Regulation Authority (FINRA) recently issued a report on Digital Investment Advice. Noting that global spending on digital wealth management services is expected to increase significantly, FINRA issued the report to share effective practices relating to digital investment advice services, as well as to remind FINRA member firms of their obligations under FINRA rules. The report focuses on key areas such as governance and supervision of algorithms and construction of client portfolios, investor profiling, rebalancing investment portfolios and training to understand key assumptions and limitations of individual digital investment advice tools. For more information, please read here.

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