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Spring 2016

Recent Ohio Sales Tax Action on Services Impacts Banking Industry

By Anthony Ehler and Steven Smiseck

Sales tax on goods and services purchased by your business is always an element of cost that must be considered. This has become especially important to the Ohio banking industry. Recently, vendors, accountants, and even the Ohio Department of Taxation have contacted banks about the application of sales tax on the purchase and consumption of certain services known as “automatic data processing” and “electronic information services.” Previously, a vendor such as your data processing vendor may not have collected Ohio sales tax on these transactions. Now, however, vendors such as Jack Henry and FiServ are generally charging sales tax on all types of computer assisted services, and some banks have been asked to remit the tax on older, untaxed, invoices by either the vendor or by the Ohio Department of Taxation upon audit.  Read more.

Maximizing Recovery on a Secured Loan Through an Article 9 Sale of a Going Concern

By Jeffrey Marks

In working out of a troubled commercial credit, often the optimal exit strategy for the senior lender is a sale of the borrower’s business as a going concern.  However, frequently it is not feasible for a distressed borrower simply to execute a sale of its assets directly to a buyer and pay the senior secured debt at closing.  This is often due to pressures on the borrower from various parts of the debt structure.  For example, the anticipated sale price may be insufficient to clear junior liens (or even senior liens), and the junior lienholders may not be willing (or obligated) to release their liens at closing unless they are paid in full.  Moreover, trade creditors or other unsecured creditors who are left holding the proverbial "bag" after closing may try to unwind the sale in court on the ground that it was for less than "fair consideration" or "reasonably equivalent value" and therefore was a fraudulent transfer under applicable state law, or under the U.S. Bankruptcy Code should the borrower later be subject to a voluntary or involuntary bankruptcy proceeding.  Read more.

Activist Investors and Community Banks

By Jeffery Smith

It was not that long ago that the concern over preparing for, and dealing with, activist investors was rare in the banking industry, and especially rare for community banks. That comfort is quickly fading, however, as more funds and individuals contemplate opportunities for becoming "activist" investors in community banks through a variety of mechanisms, some for the better and some perhaps not so much. No institution is too big or too small to be safe from the potentially disruptive influence of activist investors, and while most community banks tend to know their shareholders it is nearly impossible for most to stop shares from winding up in potentially "unfriendly" hands.  Read more.

Recent Noteworthy Court Decisions Affecting Lenders in Restructuring Matters

By Jeffrey Marks, Jeffrey Bieszczak and Kaitlyn Geiger

Earlier this year, two federal appeals courts decided cases that are significant to lenders whose borrowers are experiencing financial distress.  In one case, the court stripped the lender of its secured status because the lender had failed to investigate the borrower’s wrongdoing, despite having notice of suspicious facts.  In the other, secured lenders financing single asset real estate borrowers were handed a victory when the court made it more difficult for a borrower to confirm a Chapter 11 plan of reorganization over the opposition of its primary lender.  Read more.

Financial Regulators Reveal Impending Restrictions on Incentive Compensation for Bank Officers

By Kimberly Schaefer and Lauren Brown

As the longest awaited sequel in years, financial regulators have finally revealed their revised interagency proposal to restrict incentive-based compensation arrangements for executives at financial institutions. In 2010, the Dodd-Frank Act obligated six agencies, including the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Officer of the Comptroller of the Currency, the Securities and Exchange Commission, the National Credit Union Administration and the Federal Housing Finance Agency, to establish rules prohibiting incentive-based compensation arrangements that would encourage inappropriate risk-taking. Dodd-Frank also prescribed certain disclosure, recordkeeping and governance obligations for the incentive-based compensation programs maintained by the covered institutions.  Read more.

De Novo Charters: Reduced FDIC "Special Probation" Period

By Jeffery Smith

After nearly a decade practically devoid of state or federal de novo charter activity nationwide, the FDIC has announced plans to return to its three-year post-approval oversight period for de novos that was in effect prior to the financial crisis. The reduced "special probation" period is down from the seven-year special oversight period which has been imposed by the FDIC since 2009 as a result of the relatively high percentage of troubled de novo institutions and de novo failures.  Read more.

About the Vorys Banking Group

With nearly 20 lawyers dedicated to our banking practice, we have hundreds of years of combined practical, hands-on experience in the banking industry. We have been named a "Top Lead Legal Advisor" by American Banker magazine and a Go-To Law Firm® in banking and finance, securities and corporate transactions by Fortune 500 general counsel.

Our group has extensive experience with all aspects of bank corporate and regulatory legal matters, and our attorneys are in constant contact with senior representatives of state and federal banking agencies concerning a diverse variety of significant client matters. We have been intimately involved in the comprehensive rewrite of Ohio banking laws, currently underway with the Ohio Division of Financial Institutions. In fact, since the inception of this project, one of our lawyers, along with representatives from the Ohio Division of Financial Institutions and the Ohio Bankers League, has been a member of the four-person team tasked with handling the rewrite.

We represent public and non-public institutions, from community banks and thrifts to large, multinational financial institutions throughout the United States including clients in Ohio, Washington, D.C., Maryland, Virginia, Arizona, Florida, Indiana, Michigan, Kentucky, Missouri, New York, North Carolina, South Carolina and West Virginia.

We assist our clients with bank, thrift, holding company and non-bank affiliate formations; securities law matters; board governance and education; regulatory enforcement actions involving state and federal agencies; mergers, acquisitions and divestitures; branch acquisitions and divestitures; regulatory compliance; capitalization, recapitalization and private equity as well as debt transactions; litigation; employment law matters; executive compensation and benefit plans; tax matters; and the negotiation of all types of contracts. We also represent financial institutions and other institutional lenders, as well as borrowers, in all types of complex commercial and real estate financings, bankruptcies and restructurings.

If you have an idea for an article you would like us to pursue, please contact your Vorys attorney. We hope you enjoy the read.

To learn more, visit vorysfinancialservices.com.



Aaron S. Berke

Jeffrey W. Bieszczak

Anthony L. Ehler

Elizabeth Turrell Farrar

Jason L. Hodges

Jeffrey A. Marks

Michael D. Martz

Kimberly J. Schaefer

Steven L. Smiseck

Jeffery E. Smith

J. Bret Treier

Anthony D. Weis

Frank C. Zonars



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This alert is for general information purposes and should not be regarded as legal advice. As always, please let us know if you want more information or have questions about how these developments apply to your situation.