Steven H. Bergman
April 2019
Based on information contained in the Department of Commerce’s most recent annual report, there are currently more than 300,000 businesses operating in Utah, with approximately 60,000 new business filings each year. For the past decade, the most common form of new entity in Utah has been the limited liability company. The next most common is a DBA registration of a fictitious business name, followed by the corporation. Each of these new entities brings the promise of a new business venture, new ideas, new jobs, and potential success.
Although the overall number of businesses in Utah has been growing, the Department’s annual report suggests that on an annual basis, more 40,000 businesses either fail to file an annual report or dissolve. For the principals of these 40,000-plus businesses, the failure to file an annual report or the dissolution of the business triggers potential issues that if not managed properly can have adverse effects on the shareholders, members, directors, officers, and managers of these businesses.
Failing to file an annual report can eventually lead to administrative dissolution of a corporation or limited liability company. Once a corporation or limited liability company is administratively dissolved, any action taken by the directors, officers, or managers that is not related to the winding up of the entity can result in the personal liability of the acting director, officer, or manager.
Similarly, in those instances where the shareholders or members of a corporation or limited liability company elect to dissolve, or a court orders the dissolution of the entity, properly dissolving and winding up the entity can make the difference between the principals still enjoying some or all of the available liability protection after the entity is wound up and those same principals being exposed to personal liability for the debts of and claims against the entity. This is not a theoretical risk, as Utah Courts have found directors, officers, and managers of dissolved entities personally liable for actions taken after dissolution. In these instances, the director, officer, or manager who was found liable could have avoided that liability by complying with the annual reporting requirements under the Utah Revised Business Corporations Act or the Utah Revised Uniform Limited Liability Company Act or by following the dissolution and winding up procedures under those acts.
For example, when the dissolution and winding up process is in accordance with the provisions of the Utah Revised Business Corporations Act, officers are generally protected from post-dissolution liability, and shareholders can only be held liable for company debts and claims up to the amount they received in monetary distributions from the winding up process. Conversely, not following the procedures (for example, by distributing corporate property other than money), can expose the receiving shareholder to liability in excess of the limits set forth in the Utah Revised Business Corporations Act. Similar rules apply to limited liability companies wound up under the Utah Revised Uniform Limited Liability Company Act.
Another important part of the winding up process is the management of claims against the entity. Following the procedures under either act can lead to the early and final resolution of claims against the entity. Not following those procedures can result in claims against the entity. Furthermore, the former shareholders or members may also be exposed to liability for extended periods–up to seven years in the case of corporations and six years in the case of limited liability companies.
The attorneys in Richards Brandt’s Business Transactions and Corporate Governance and Business and Commercial Litigation practice groups know and understand the statutes, rules, and regulations that apply to corporations and limited liability companies. If you have a corporate or company governance issue, or are in the process of or soon will be dissolving and winding up a corporation or limited liability company, contact one of the attorneys in RBMN’s Business Transactions and Corporate Governance or Business and Commercial Litigation practice groups.
Gov. Cox appoints Richards Brandt’s Brian Bolinder to Seventh District Court
SALT LAKE CITY (Nov. 28, 2023) — Utah Gov. Spencer J. Cox has appointed Brian Bolinder to the Seventh District Court, filling the vacancy left by Judge George Harmond’s retirement. Bolinder’s nomination requires confirmation by the Utah Senate.
“I appreciate Brian’s willingness to enter public service and have confidence in his ability to serve the people of the Seventh District Court well,” Gov. Cox said. “I look forward to his confirmation.”
Bolinder is currently a shareholder at Richards Brandt Miller Nelson in Salt Lake City where he specializes in construction, business, real property and tort litigation. He previously served as an associate at Suitter Axland, Salt Lake City, and is past chair of the construction section of the Utah State Bar. He’s also been recognized by Mountain States Super Lawyers and Utah Business Magazine Legal Elite. Since 2016, Bolinder has served as a judge pro tempore in Salt Lake City Justice Court handling small claims matters.
“It is an honor and a privilege to be appointed by Gov. Cox to serve the Seventh District as a District Court Judge. I am humbled and grateful for this opportunity to return to southeastern Utah and serve the citizens of Carbon, Emery, Grand, and San Juan Counties both inside and outside the courthouse,” Bolinder said. “If I am confirmed by the Senate, I will diligently, faithfully, and fairly apply the law in all matters before me while ensuring neutrality and respect is provided to those with whom I interact.”
A native of Ferron, Bolinder has a bachelor’s degree from the University of Utah in Political Science with a minor in Russian, and a juris doctorate from the S.J. Quinney School of Law at the University of Utah.
Click here to read this press release on the Governor’s website.
Congrats to RBMN’s Adam Affleck and his clients for winning one for the ‘little guy.’
Click for full story
The Doctrine of Election of Remedies in Utah
July 2019
One procedural issue parties occasionally face in civil litigation is the requirement to make an election of remedies. In its most basic terms, the election of remedies doctrine prevents double redress for a single wrong and avoids legally or factually inconsistent recoveries for the same wrong. There may be a claim alleged in your case that could lead to multiple, inconsistent remedies, and if so the party making that claim will need to make an election of remedies. One Utah case described it this way: “If a defendant wrongfully retains possession of a plaintiff’s cow, for example, the plaintiff may not recover both the cow and the reasonable value of the cow. The plaintiff must elect one of these two remedies.”
This issue often arises in business and commercial litigation where a plaintiff claims there was mutual mistake or some form of misrepresentation when a contract was entered. If so, the plaintiff may pursue the remedy of damages for breach of contract or may seek rescission of the contract. But ultimately, the plaintiff cannot be awarded both of these remedies.
One important question is when the election must be made. Utah’s modern pleading rules permit litigants to plead inconsistent theories of recovery in the alternative. Contrary to the harsh rule in older case law, current Utah law permits a party to pursue inconsistent remedies until the fact-finder and the judge have resolved all factual and legal disputes related to the inconsistent theories of liability. Thus, an election of remedies is not binding until one remedy is pursued to a determinative conclusion.
If your case involves a claim that supports multiple, inconsistent remedies, it is important to identify those potential remedies early on, evaluate the merits of all available remedies, and be mindful of the need, ultimately, to make an election between them.
Matthew Barneck is a shareholder at the Salt Lake City law firm of Richards Brandt Miller Nelson. He can be reached at Matthew-Barneck@rbmn.com, 801-531-2000.
Avoiding dissolution pitfalls and protecting against post-dissolution liability for company debts and claims
Steven H. Bergman
April 2019
Based on information contained in the Department of Commerce’s most recent annual report, there are currently more than 300,000 businesses operating in Utah, with approximately 60,000 new business filings each year. For the past decade, the most common form of new entity in Utah has been the limited liability company. The next most common is a DBA registration of a fictitious business name, followed by the corporation. Each of these new entities brings the promise of a new business venture, new ideas, new jobs, and potential success.
Although the overall number of businesses in Utah has been growing, the Department’s annual report suggests that on an annual basis, more 40,000 businesses either fail to file an annual report or dissolve. For the principals of these 40,000-plus businesses, the failure to file an annual report or the dissolution of the business triggers potential issues that if not managed properly can have adverse effects on the shareholders, members, directors, officers, and managers of these businesses.
Failing to file an annual report can eventually lead to administrative dissolution of a corporation or limited liability company. Once a corporation or limited liability company is administratively dissolved, any action taken by the directors, officers, or managers that is not related to the winding up of the entity can result in the personal liability of the acting director, officer, or manager.
Similarly, in those instances where the shareholders or members of a corporation or limited liability company elect to dissolve, or a court orders the dissolution of the entity, properly dissolving and winding up the entity can make the difference between the principals still enjoying some or all of the available liability protection after the entity is wound up and those same principals being exposed to personal liability for the debts of and claims against the entity. This is not a theoretical risk, as Utah Courts have found directors, officers, and managers of dissolved entities personally liable for actions taken after dissolution. In these instances, the director, officer, or manager who was found liable could have avoided that liability by complying with the annual reporting requirements under the Utah Revised Business Corporations Act or the Utah Revised Uniform Limited Liability Company Act or by following the dissolution and winding up procedures under those acts.
For example, when the dissolution and winding up process is in accordance with the provisions of the Utah Revised Business Corporations Act, officers are generally protected from post-dissolution liability, and shareholders can only be held liable for company debts and claims up to the amount they received in monetary distributions from the winding up process. Conversely, not following the procedures (for example, by distributing corporate property other than money), can expose the receiving shareholder to liability in excess of the limits set forth in the Utah Revised Business Corporations Act. Similar rules apply to limited liability companies wound up under the Utah Revised Uniform Limited Liability Company Act.
Another important part of the winding up process is the management of claims against the entity. Following the procedures under either act can lead to the early and final resolution of claims against the entity. Not following those procedures can result in claims against the entity. Furthermore, the former shareholders or members may also be exposed to liability for extended periods–up to seven years in the case of corporations and six years in the case of limited liability companies.
The attorneys in Richards Brandt’s Business Transactions and Corporate Governance and Business and Commercial Litigation practice groups know and understand the statutes, rules, and regulations that apply to corporations and limited liability companies. If you have a corporate or company governance issue, or are in the process of or soon will be dissolving and winding up a corporation or limited liability company, contact one of the attorneys in RBMN’s Business Transactions and Corporate Governance or Business and Commercial Litigation practice groups.
Gary Johnson Receives G. Duffield Smith Outstanding Publication Award
August 2018
Gary Johnson has been selected as this year’s DRI recipient of the G. Duffield Smith Outstanding Publication Award. This award honors the author of the most outstanding defense related article published in For The Defense or In-House Defense Quarterly in 2017. His article «Planning the Future: Blockchain Technology and the Insurance Industry published in the In-House Defense Quarterly Fall 2017 issue, has achieved this highest standard.
The award will be presented at «A Celebration of Leadership» at the 2018 DRI Annual Meeting in San Francisco, California.
Richards Brandt congratulates Gary on his remarkable achievement.
Read article here: https://www.richardsbrandt.com/wp-content/uploads/2017/10/16J1065-GLJ-BLOCKCHAIN-TECHNOLOGY_.pdf
Barbara Melendez Selected as One of 30 Women to Watch by Utah Business Magazine
June 2018
Barbara Melendez
Richards Brandt Miller and Nelson congratulates Barbara Melendez, Shareholder and Immigration Practice Chair, who has been selected as one of Utah Business 30 Women to Watch. Richards Brandt is honored to be associated with Barbara who is a highly respected and valued member of the firm. Barbara’s dedication, expertise and experience are invaluable assets to the firm and the community. We are proud of her outstanding achievements and contributions to Richards Brandt Miller Nelson and the legal community.
UCC Article 9: What You Need to Know, Part 5
Clint M. Hanni
April 2018
UCC Financing Statements
Once the loan documents have been signed, it is imperative from the lender’s point of view that a UCC financing statement be filed in the proper location to “perfect” its interest in the collateral. This is a routine task that is easy to overlook in the rush to close a loan. Multi-million dollar loans have been completely uncollectible because someone forgot to file the financing statement. The takeaway is simple: don’t forget to file!
Beyond simply filing the UCC financing statement, there are three fundamental issues that the lender must get right.
First, file in the right place. UCC Article 9 has a simple rule for finding the right place to file the UCC financing statement—file in the state where the debtor is located. For debtors that are business entities, such as corporations or limited liability companies, regardless of where they may have their corporate headquarters, they are deemed located in the state where they filed their organizing documents, such as articles of incorporation or certificate of organization.
Second, get the name of the debtor right. The general rule is that a UCC financing statement is effective only if a searcher could find it by searching the state’s database with the debtor’s correct name. What this means in practice is that you must list the exact legal name of the debtor on the UCC financing statement. This includes commas, periods, spaces, hyphens and all other incidental characters. For corporate entities, the best way to get the name right is to request that the debtor provide you with a good standing certificate from its state of organization, which will list the debtor’s exact legal name. DBA’s are not good enough. There are endless horror stories of misspelled debtor names that spelled disaster for lenders.
Third, get the collateral description right. All UCC financing statements must include an indication of the collateral. If the collateral is all the debtor’s assets, then you can simply list “all assets” in the collateral box (but remember that this approach does not work in the security agreement itself). If the collateral is a subset of the debtor’s assets, consult the signed security agreement and use its collateral description for the financing statement.
When it comes to UCC Article 9, small errors can be catastrophic. It will be well worth your time and money to consult an attorney with UCC expertise.
Clint M. Hanni is Of Counsel to Richards Brandt Miller Nelson. He is a member of the Business Transactions & Corporate Governance, Banking and Finance Law, Business Bankruptcy and Creditor Rights, and Real Estate Transactions & Litigation practice groups.
UCC Article 9: What You Need to Know, Part 4
Clint M. Hanni
April 2018
Security Agreements – For Debtors
Let’s say that you have approached a bank about getting a loan for working capital purposes. You have inventory and accounts receivable to offer as collateral to secure the loan. After agreeing to basic terms, the bank sends you a loan agreement, a promissory note and a security agreement. The bank has assured you that these are all “standard documents” and encourages you to quickly sign and return them so the loan can be funded and you can get your money. Before you sign the security agreement, however, it’s important to understand that there’s really no such thing as a “standard document” when it comes to security agreements. There are only short-form minimalist documents that cover the basic elements necessary for the creation and attachment of a security interest and long-form documents that describe the lender’s remedies in exhausting detail.
The debtor should take care to review the obligations that are secured by the collateral. Generally, the obligations to be secured should be limited to obligations arising under the loan agreement itself. Lenders often will extend the obligations to include any and all obligations owing from the debtor to the lender at any time in the past or future. As a debtor, make sure you are comfortable with this approach or push back to place limits on the secured obligations.
Every security agreement will have a collateral description, and the debtor should review it carefully to confirm the collateral is as agreed. This is less important where the debtor has agreed that all its assets will constitute collateral. It is more important where the debtor has multiple lenders each with different collateral. Lenders often include over-inclusive collateral descriptions and depend on the debtor to trim them back. It is worth being careful on this point. An over-inclusive collateral description can throw the debtor into default under prior loan agreements and result in the waste of time and money to fix.
A security agreement gives the lender the right to seize the debtor’s collateral upon the occurrence of certain listed “events of default.” A debtor should review these events of default carefully to confirm they will not be triggered unexpectedly. For example, it is customary for the debtor’s failure to make a payment to the lender to be deemed an event of default, but only after all cure periods have been exhausted.
A smart debtor will insist that any loan documents it receives be reviewed quickly and efficiently by experienced counsel, even if the lender claims they are “standard documents.”
Clint M. Hanni is Of Counsel to Richards Brandt Miller Nelson. He is a member of the Business Transactions & Corporate Governance, Banking and Finance Law, Business Bankruptcy and Creditor Rights, and Real Estate Transactions & Litigation practice groups.
UCC Article 9: What You Need to Know, Part 3
Clint M. Hanni
March 2018
Security Agreements – For Lenders
Security agreements lie at the heart of loan transactions. If you are a lender, the security agreement is the document that insures you will be repaid. Security agreements are most often stand-alone documents, but they don’t have to be. Language creating a security interest can be embedded in any other agreement, such as a loan agreement, a purchase order, a promissory note or a deed of trust. The key to creating a security interest is including language whereby the debtor “grants a security interest” to the lender in named collateral. Beyond that, there are two elements of utmost importance in a security agreement that, surprisingly, are often overlooked.
First, the security agreement must indicate what the collateral is. There doesn’t have to be an exhaustive description of each separate item of personal property of the debtor that constitutes collateral. It is enough to identify the category or type of collateral, such as equipment, inventory, accounts receivable, deposit accounts and the like. UCC Article 9 identifies the generally recognized types of personal property collateral in which a security interest can be taken. You should always consult a qualified lawyer to review any collateral description in a security agreement to confirm it is adequate (for the lender) and not overreaching (for the debtor).
A common pitfall is to identify the collateral by simply referencing “all assets” of the debtor or “all personal property” of the debtor. Many lenders have tried this, thinking that it will get them the most collateral, only to find out that UCC Article 9 specifically disqualifies this approach. Such lenders end up with no security interest, no collateral and a difficult path to repayment if the debtor becomes insolvent. To create an effective security interest, the collateral must be identified by specific type or category.
The second element of utmost importance is that the security agreement must be signed by the debtor. This is a simple matter, but often overlooked. An unsigned purchase order with embedded language about the creation of a security interest is not sufficient. The mere filing of a UCC financing statement (which, as a rule, is not a signed document) is not sufficient. Without the debtor’s signature on a written (or electronic) security agreement, no security interest will be created.
As you can see, the requirements of a security agreement are complicated. Before providing a security agreement to a debtor, it’s wise to have it reviewed by a competent attorney with UCC expertise.
Clint M. Hanni is Of Counsel to Richards Brandt Miller Nelson. He is a member of the Business Transactions & Corporate Governance, Banking and Finance Law, Business Bankruptcy and Creditor Rights, and Real Estate Transactions & Litigation practice groups.
UCC Article 9: What You Need to Know, Part 2
March 2018
What is a security interest?
At the heart of UCC Article 9 is the concept of a “security interest.” The UCC itself defines a security interest as “an interest in personal property or fixtures which secures payment or performance of an obligation.” The definition goes on for another eight lines, but the gist of it is that a lender receives security for its loan by getting an interest in the debtor’s collateral. In other words, a security interest is a type of lien that allows a lender to take collateral from a debtor that defaults on an obligation. Under UCC Article 9, a security interest only attaches to personal property collateral. Personal property essentially includes everything but land and buildings (the latter are called real property).
When it comes to security interests, two important concepts come into play. First, in order to be of any effect, a security interest must be created and attach to personal property. Second, in order to be enforceable against a debtor, a security interest must be properly perfected.
In order for a security interest to be created and attach to collateral, there are three basic requirements. The debtor (the one owing the obligation) must sign a security agreement, which will be discussed in more detail in future blog segments. The secured party (the one receiving the obligation) must give value to the debtor, for example, in the form of a loan. Lastly, the debtor must have rights in the collateral, which generally means that the debtor owns or is leasing the collateral.
Even though a security interest has attached to collateral, it is of little value until it has been perfected, or in other words, can be legally enforced, a matter of great importance for lenders. The way to perfect a security interest depends on the type of collateral. For most types of collateral, perfection of a security interest is generally done by filing a UCC financing statement with the central filing authority in the state, which is often the secretary of state. In Utah, the place to file is the Division of Corporations and Commercial Code. For certain types of collateral, the only way to perfect a security interest is for the lender to take control or take possession. In other cases, the lender can perfect its security interest in any one of several ways, but with possibly differing priorities. It is possible, for example, for two lenders to perfect a security interest in the same collateral, but with different resulting priorities. If you are a lender wanting to perfect a first priority security interest in collateral, it is essential to consult a lawyer with expertise in UCC Article 9 so that you perfect the security interest in the proper manner and comply with other legal requirements for a legally enforceable interest.
Clint M. Hanni is Of Counsel to Richards Brandt Miller Nelson. He is a member of the Business Transactions & Corporate Governance, Banking and Finance Law, Business Bankruptcy and Creditor Rights, and Real Estate Transactions & Litigation practice groups.