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Ed knows that mergers and acquisitions can grow very complicated, very quickly. Negotiating to remove or sidestep roadblocks is a hallmark of Ed’s successful transactions. Private fund clients rely on Ed for advice on formation, regulatory and investment matters. Ed also has significant experience representing both buyers and sellers in M&A transactions.

Recently the food and agribusiness industry has seen a significant increase in private equity activity. These private equity funds should keep in mind new liability concerns raised by the Sun Capital case.

Business owners rely on the legal generality that the owners of an entity are not liable for the debts of that entity. However, there are exceptions to this rule, and one comes from the world of pension withdrawal liability. Pension withdrawal liability may be imposed on a party that is not the company obligated to the pension fund if such party is part of the same “controlled group” under ERISA. In the past, a private fund and its portfolio companies were not typically considered part of a controlled group; however, the Sun Capital ruling in 2013 determined that under certain circumstances, private funds and their portfolio companies could be considered part of a controlled group.

The controlled group rules are complex, but generally two conditions must be satisfied: (1) the party must be under “common control” with the company obligated to the pension fund; and (2) the party must be a “trade or business.” The “common control” test is fairly objective. In general, an 80% threshold for voting rights or economic ownership demonstrates the common control of multiple entities. However, the “trade or business” test is more subjective, and prior to the Sun Capital case, the general consensus was that a private fund was not a “trade or business.” Historically, the argument was that a private fund’s passive investment in a portfolio company was not sufficient to constitute a trade or business.
Continue Reading The Sun Capital Case: New Liability Concern for Private Funds Extends Beyond Pension Liability