Welcome to the Spring 2012 Edition of our Newsletter. I hope that you find the discussions relating to the “fresh start” available from a bankruptcy filing, the need to review your estate plan on a regular basis and the narrowing trend with respect to enforcement of restrictive covenants and confidentiality restrictions helpful. Our attorneys are ready to assist you with your legal needs in these and other areas.

We know that we do excellent work, but it’s good to hear that from others. For 2012, Golan & Christie has again been named an “AV Preeminent Rated” firm by Martindale-Hubbell, the oldest and most well regarded lawyer rating service. In addition, almost all of our partners are either Leading Lawyers or Super Lawyers (rated in the top 5% by our peers). What I am most proud of is that Matthew Wasserman, Laura Balson, Richard Wallace and Ashley Orler have all been named as “Rising Stars” by Super Lawyers. This award goes to the top 2.5% of lawyers in the Under 40 age group. Congratulations to our Rising Stars.

-Stephen L. Golan
 Managing Partner

Bankruptcy comes in several flavors, and a Chapter 11 is the flavor that allows a business to reorganize and continue to operate. Can small businesses benefit from filing a Chapter 11 bankruptcy? YES! And here’s why:

• Immediately upon filing, the debtor is entitled to the protections of the automatic stay. This prevents creditors from taking any action to collect their debts. It puts all litigation on hold and can prevent a lender from proceeding with a foreclosure of its mortgage or a UCC sale of business assets. This provides a small business a little bit of breathing room.
• The debtor can also reject unfavorable contracts like leases or rental agreements. This allows a small business to close locations and get relief from above-market rent.
• The debtor can also borrow new money through a debtor-in-possession or DIP loan, and give the lender a super-priority lien, which puts them ahead of the business’ existing lenders.
• Debtors can also sell some or all of their assets (including real estate, machinery and equipment, vehicles, and even intellectual property) free and clear of liens and claims, with the liens attaching to the proceeds of the sale.
• The debtor also gets a reprieve from paying its pre-bankruptcy debts while it is in Chapter 11. During this time, the debtor can accumulate a surplus to help strengthen the business after bankruptcy. And while these debts must be addressed in a plan and a percentage paid over time, the total paid to unsecured creditors depends on the liquidation value of the business, which is generally much less than the total owed.

Can some or all of this be done outside of a bankruptcy? No - these protections only exist in bankruptcy.

Is Chapter 11 the answer for every small business that either can’t afford to pay its creditors or finds itself upside down? No, but it should be considered, along with several other less costly options. These options should be discussed with experienced bankruptcy counsel. Especially if the business is continuing to lose money and can only survive by increasing the debts to its trade creditors or failing to pay payroll taxes, both of which can subject the business owner to personal liability.

Some of the factors to consider include:

• Whether the business can break even or operate at a profit during the Chapter 11 process.
• Whether the business model is effective, e.g. do they offer goods and/or services which are in demand?
• What is the relationship between the debtor and its trade creditors?
• What is the relationship between the debtor and its lenders?
• Does the business own the real estate in which it operates and, if not, what is the relationship between the debtor and its landlord?
• What is the quality and loyalty of the work-force?
• Does the owner have access to cash or credit to put into the business?
• Does the business have non-essential assets which can be marketed and sold?
• Did the business owners take a lot of money out of the business during the prior year?

It is possible for struggling and cash-strapped businesses to change their business model, obtain new financing, restructure existing debt and negotiate payment plans with their creditors without filing a bankruptcy. But when all else fails, Chapter 11 should at least be considered as an option before shutting the doors.

And while Chapter 11 is expensive, the costs can be quite reasonable compared to the valuable benefits Chapter 11 can provide, not to mention the huge amount of debt which can be eliminated from a small business’ bottom line.ntact Ms. Yong at 312.696.2034 or Blyong@golanchristie.com to see whether your business might benefit from filing a Chapter 11 bankruptcy or pursuing one of the less costly reorganization alternatives.

Over 50% of the population does not have any estate plan. Not a will. Not a trust. Nothing. Further, of those people that have done some planning, what they have is in many cases out of date or has not been fully implemented.

For example, many individuals have a revocable living trust that spells out their intentions regarding the distribution of their assets when they die, but do not realize that these assets are still owned in joint tenancy with another person. What that means is, upon death, the assets pass to the surviving joint tenant, irrespective of the content of the estate planning documents, and the intent of the individual may be frustrated. Similarly, life insurance, 401(K) plans, profit sharing plans and IRAs are frequently overlooked with regards to the beneficiary of the

Sadly, the people that ultimately are hurt by an ineffective estate plan are the individual, if he or she becomes incapacitated, and the individual’s family. The following are some important questions that you should consider to determine whether your estate

When was your estate plan last reviewed? If the answer is never or more than five years ago, you should consider meeting with your attorney to discuss how changes in law or your circumstances may warrant revisions to your documents.

Have there been any changes in your family situation, such as a death or incapacity of a family member or an individual named as a trustee, executor or guardian? Have you or any family member gotten divorced or married?

Has your financial situation changed dramatically either favorably or adversely? Have you or a family member inherited any significant amounts or have you received any funds from a trust?

Have you changed your residence to another state or have you acquired real estate in another state?

Have you or any family member developed creditor concerns as a result of:

• Potential liability due to your business or profession.Becoming a member of a board of directors.
• Investing in a business where personal guarantees may be required.
• Purchasing of commercial or industrial real estate.
• Have you reviewed the beneficiaries on your employee benefit plans (IRAs, 401(K) plans, pension and profit sharing plans) in the last 24 months? Frequently, the beneficiary of these plans can be changed to extend the payout of benefits and, thereby, defer the payment of income taxes.
• Have you or an advisor reviewed your life insurance, in particular with respect to whether the amount of life insurance that you carry adequate to meet your needs? Life insurance can be an excellent technique for protecting your assets against potential creditors. Is the ownership of your policies and the beneficiaries consistent with your estate plan?

If either you or your spouse is the owner of your insurance, you should consider the advisability of creating an Irrevocable Life Insurance Trust that could eliminate the proceeds from your estate for estate tax purposes. Even if you own the policies, the beneficiary of the proceeds should be consistent with your estate plan. Normally, if you have a revocable living trust, the beneficiary of the proceeds should be the trustee of the trust.

In summary, your estate plan is not a static set of documents. It must be reviewed periodically to insure that it still meets your objectives. If you’d like to discuss whether your estate plan needs to be updated, contact Mr. Siegal at 312.696.1699 or bpsiegal@golanchristie.com.

In our Winter 2012 newsletter, we discussed the groundbreaking Illinois Supreme Court opinion in Reliable Fire Equipment Company v. Arrendendo, which changed the landscape for employers looking to enforce restrictive covenants (often called non-compete and non-solicit provisions). Other courts – both state appellate and local federal courts – have begun weighing in on this case and how it will be applied on a practical level.

The first case to publish its ruling is Rubloff Development Group, Inc. v. SuperValu, Inc. On March 27, 2012, the federal court in Chicago used the analysis in Reliable Fire to support its conclusion that the confidentiality restriction in a former employee’s employment contract was too broad and thus unenforceable.

“[P]ost-employment restrictive covenants that insist on absolute secrecy of any and all information [are] unreasonable and unenforceable because a person is allowed to make a living, and cannot possibly not utilize any information from his past job.” The court then used the totality-of-the- circumstances standard explained in Reliable Fire to determine that the employer had gone too far in trying to prevent its former employee from disclosing “any and all information” learned from his employer.

The new case emphasizes that all restrictions – even confidentiality restrictions – must be narrowly tailored to protect only the information that is really necessary for an employee to keep secret. This standard will likely be applied to confidentiality provisions in other contexts too, such as Non-Disclosure Agreements between businesses.

Take away: Trying to over-reach and protect information that is not really confidential may result in a court refusing to enforce a confidentiality agreement at all. To be enforceable, confidentiality provisions must be customized to cover only what is reasonable. Contact Laura A. Balson or Margaret A. Gisch to discuss whether the confidentiality provisions in your company’s contracts need to be reviewed in light of this change in the law.

Savvy employers know that two things help protect them against harassment claims: (1) a written policy against sexual harassment and discrimination; and (2) an internal complaint procedure for employees to voice any potential violations of the policy. If, however, those policies are not followed in practice, or if employees are not trained how to utilize the internal complaint procedure, employers may find themselves unprotected.

In EEOC v. Management Hospitality of Racine d/b/a International House of Pancakes, et. al, former employees were awarded more than $100,000 as a result of the sexual harassment they asserted against their manager. Although IHOP had a policy against sexual harassment and had trained employees on the policy, the 7th Circuit upheld the jury award because of the type of employees working at IHOP. As the court explained, “what is reasonable depends on the employment circumstances and therefore, among other things, on the capabilities of the class of employees in question… moreover, the policy must not only be reasonably effective on paper, but also reasonably effective in practice.”

Taking pro-active steps to assess your employees and to evaluate what is working within your organization can save you from a costly mistake.

Golan & Christie Partner, Beverly A. Berneman, recently taught an advanced class in Bankruptcy and Intellectual Property at the John Marshall School of Law. Beverly also teaches a course in Financing the Development of Intellectual Property. She created the curriculum for both of these unique courses and has been teaching them for 9 years.

The John Marshall Law School’s intellectual property law program earned top law school rankings for the second year in a row in US News and World Report’s Best Graduate Schools issue. The program’s ranking was partly based upon its 30 specialized intellectual property courses, making it one of the most extensive sets of intellectual property offerings anywhere. Beverly is proud to be part of this nationally recognized program.