Together but Separate: Private Equity Funds Liability for Portfolio Company Pension Obligations

Posted by Rick Giovannelli and Ali U. Nardali, K&L Gates LLP, on Sunday, December 15, 2019

Editor’s Note: Rick Giovannelli and Ali U. Nardali are partners at K&L Gates LLP. This post is based on their K&L Gates memorandum.

Private equity sponsors recently won a significant court victory that may result in increased appetite for transactions involving companies with unionized workforces. On November 22, 2019, the United States Court of Appeals for the First Circuit held [1] that the ownership stakes of related but separate private equity (“PE”) funds in a portfolio company will not be aggregated for purposes of determining whether those funds themselves are part of the portfolio company’s “controlled group” and therefore subject to the portfolio company’s union pension liabilities under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Background

In a leveraged buyout in early 2007, multiple funds sponsored by Sun Capital Advisers, Inc. (“Sun Capital Funds”) acquired 100% of Scott Brass, Inc. (“SBI”), which had approximately $4.5 million in union pension liabilities. As is increasingly typical in buyout transactions, Sun Capital acquired SBI through multiple funds, which in the aggregate held all of SBI’s ownership interests, although none of the Sun Capital Funds individually owned 80% of SBI. When SBI filed for bankruptcy in late 2008, the union pension fund demanded $4.5 million from the Sun Capital Funds, arguing that the Sun Capital Funds themselves were part of SBI’s “controlled group” under ERISA.

(more…)

Read Previous

AMW :- Opalesque Roundup: Maverick vs. Discovery Capital: Two brand name hedge funds take opposite directions: hedge fund news, week 47

Read Next

PE Insights Germany – Private Equity Insights

Most Popular

We use cookies to offer you a better browsing experience. If you continue to use this site, you consent to our use of cookies.
We use cookies to offer you a better browsing experience. If you continue to use this site, you consent to our use of cookies.