Holding the Defensive Line: Delaware Court Rejects Extension of Warn Act Liability to Private Equity Sponsor

16 May 2013
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  • Private equity sponsors may be attractive targets for claimants seeking deep pockets to hold responsible for employee-related liabilities if a portfolio company fails.
  • A recent decision from the U.S. Bankruptcy Court for the District of Delaware is good news for investors: the court rejected an attempt to hold a private equity sponsor liable for the federal WARN Act violations of its portfolio company.
  • Sponsors can dramatically improve their ability to defend against spillover liabilities of their portfolio companies by following best practices relative to corporate governance, corporate separateness and documentation of management agreements.