Carve Out Provisions

News & Analysis as of

West Coast Real Estate Update: May 2016

IRS Reevaluates "Bad Boy" Carve-Outs - Before providing a non-recourse loan to a Limited Liability Company (LLC) – i.e., one for which the LLC members do not bear the risk of economic loss – a lender often will require...more

New Guidance on Bad Boy Guarantees

The IRS Office of Chief Counsel recently released a memorandum (#AM2016-001) addressing the proper tax treatment of nonrecourse carve-outs (or bad boy guarantees) in the partnership context. According to the memorandum, such...more

Tax and Non-Tax Reasons to be Cautious about “Bad Boy Nonrecourse Carve-out Guarantees” - IRS Backtracks on Recent Conclusion that...

On April 15, 2016 the IRS reversed its controversial position that bad boy guarantees may convert nonrecourse debt into recourse debt. General Legal Advice Memorandum Number AM2016-001 released April 15, 2016 effectively...more

IRS Reverses Position on “Bad Boy” Guarantees

Earlier this year, the IRS issued Chief Counsel Advice 201606027 (February 5, 2016) concluding that, for purposes of the basis and at-risk limitations, an LLC member’s guarantee of entity-level nonrecourse debt conditioned...more

Florida Court Says it’s Not Fraud When Misrepresentations are Made During Settlement Negotiations

When settling a case, litigators are naturally focused on avoiding “Round 2” of the litigation for their clients. Toward this goal, lawyers avoid drafting settlement agreements that include any sort of representations or...more

Financial Services Quarterly Report - First Quarter 2016: Northstar Decision on Remand: U.S. District Court Holds SLUSA Precludes...

In a complete victory for Defendants, on February 23, 2016, a federal district court dismissed with prejudice the final remaining claims in Northstar Financial Advisors, Inc. v. Schwab Investments et. al., which had been...more

Bad Boy Guarantee May Cause Deductions From Nonrecourse Loan to be Reallocated

In a recent Internal Litigation Memorandum, the Internal Revenue Service found that a nonrecourse loan containing certain “bad boy” guarantees required the loan to be treated as a recourse loan for federal income tax...more

Auditing Standard 18 Ramifications for Management’s Related Party Representations

Companies’ management should consider whether to add a materiality carve-out to the related party representations now being included in management representation letters as a result of the PCAOB’s Auditing Standard No. 18 (AS...more

New IRS Regulations for Mixed-Use Projects Financed With Tax-Exempt Bonds Have Practical Importance

On October 27, 2015 the U.S. Treasury Department and Internal Revenue Service published final regulations concerning the treatment of “mixed-use” projects financed with tax-exempt bonds. These new regulations have significant...more

SEC Approves Rule to Regulate Debt Research Reports and Debt Research Analysts

Background - Eight years in the making, the US Securities and Exchange Commission (SEC) has finally approved the Financial Industry Regulatory Authority’s (FINRA's) proposed Rule 2242 (the Rule or Rule 2242), which will...more

Effective Carve-Outs to Seek Injunctive Relief from the Court in Arbitration Provisions

Christopher Pike: “That’s a technicality.” Spock: “I am a [lawyer], sir. We embrace technicalities.” Star Trek Into Darkness - Arbitration is no longer the final frontier. Instead, arbitration is often the...more

Abilify®’s Saga Continues: Otsuka’s Eight-Day Streak of Generic-Free Competition Ends, For Now

On May 27, 2015, the U.S. District Court for the District of Maryland granted FDA and the Defendant-Intervenors summary judgment against Otsuka Pharmaceutical Co., Ltd. Otsuka Pharmaceutical Development and Commercialization,...more

European High Yield and leveraged loans: Has the convergence gone too far?

The growth of the High Yield (HY) market in the leveraged finance arena has, save for a few short term downturns, continued unabated since the onset of the financial crisis. The financial crisis and the continued...more

Cutting Union Grass – Federal Court Endorses Greenfields Project Carve-Outs

The Full Court of the Federal Court (Court) has handed down its decision in MI&E Holdings Pty Ltd v Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia [2015]...more

Sale Proceeds: Better Get the Carve-Out Right the First Time

In re Stacy’s, Inc., 508 B.R. 370 (Bankr. D. S.C. 2014) – A debtor sold substantially all of its assets after negotiating with its primary secured creditor for carve-outs from the sale proceeds for administrative...more

FINRA Provides New Carve-Out Provisions to Include in Settlement and Confidentiality Agreements

Financial Industry Regulatory Authority (FINRA) Member Firms have new language to include in their settlement and confidentiality agreements. On October 9, FINRA released Regulatory Notice (RN) 14-40, warning that firms are...more

Dispute resolution clauses and reasonable endeavours obligations

This article aims to provide some useful contract drafting tips in the context of dispute resolution clauses, and clauses requiring parties to use best or reasonable endeavours. This article builds on lessons learned from...more

Guarantors Remain Liable for “Carve-out” Obligations, Despite Non-recourse Loan

Believe it or not, guaranty contracts mean what they say. If a guarantor agrees to reimburse a lender for misappropriated security deposits, unpaid taxes, and the cost of enforcement, then – not surprisingly – courts will...more

Labor & Employment E-Note

In This Issue: - High Court to Hear Case on Pregnancy Accommodations - Supreme Court Says Some Employees Don't Have to Pay Union Fees - Recent Decision Leaves Questions About Religion in Hiring Process - NLRB...more

Minnesota Passes Law Raising Minimum Wage

On Monday, Governor Mark Dayton signed into law legislation that will increase Minnesota’s minimum wage to $9.50 by 2016. With the passage of the new minimum wage law, Minnesota becomes the fifth state this year to raise its...more

The M&A Word of the Day® from the Book of Jargon® – Global Mergers & Acquisitions Is Carve-Out Transaction [Video]

Latham & Watkins partner Zachary Judd explains the M&A term carve-out transaction, an acquisition of a subsidiary, business unit or division from a larger enterprise with other operations. For additional definitions of the...more

In Sourcing and Licensing Agreements Governed by New York Law, Think Twice About a Gross Negligence Carve-out to a Limitation on...

Limitations on liability and disclaimers of damages for breach of contract claims are commonplace in outsourcing, licensing and procurement agreements. These provisions can create contentious negotiations as the parties seek...more

Addressing Sale Proceeds In The Face Of Guaranty "Carve-Out" Provisions

Commercial loans to closely held business entities, such as an LLC or partnership, typically include guaranties by the entity’s principal. Sometimes, the guarantor demands a “carve-out” to expressly exempt one or more of the...more

New York’s Lichtenstein Decision Highlights Conflicts of a Carve-Out Guarantor

The recent New York case of Lichtenstein v. Willkie Farr addresses a borrower's conflict caused, in part, by a loan covenant. The covenant invoked personal liability of the members in the event the entity files a voluntary...more

OIG Maintains Position on "Carve Outs" of Federal Health Program Beneficiaries Implicating the Anti-Kickback Statute

A recent OIG Advisory Opinion concludes that a proposed arrangement, in which a commercial laboratory would contract with medical practices to assist them in developing their own clinical laboratories, necessarily implicates...more

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