Does this scenario sound at all familiar?
Panic is setting in. It is 1 AM two days before the closing and you still don’t have all of the Good Standing Certificates you need. Plus, you just found out today that the Delaware corporation that is merging into the other Delaware corporation as part of the restructuring for this loan transaction needs to complete and submit its current annual report and pay back taxes of $10,000 to restore good standing. You were also surprised to learn that this can’t be done online – even in Delaware, which is supposed to be so easy to work with.
You wonder how this could be happening. All of the entities for this deal were in good standing last week, but not today when you got the pre-closing bringdown results. You say to yourself, “If only I had researched what was needed earlier than three days before the closing date!”
The associate you are working with is also in a panic because he said that if you don’t have all of the good standing certificates, the Partner won’t be able to sign a clean legal opinion and she will be FURIOUS! You know from your last deal, when just one good standing certificate was missing, the lenders threatened that the deal could not close without it. A few years ago, that would be allowed as part of the post-closing delivery, but not in this economy. Lender requirements are much stricter and that is not likely to change any time soon.
As if the issues above were not enough, this deal also has companies in two international jurisdictions, which further complicates matters.
Tips for Avoiding the Last-Minute Scrambling
As the associate or paralegal charged with obtaining the good standing certificates to support representations and warranties in the transaction documents and legal opinion, as soon as you learn about an upcoming closing, go into “closing monitoring mode” and ask the following questions:
- What is the closing date?
- How close to the closing date do the good standing certificates need to be dated?
- Are there any international jurisdictions involved? Obtaining the required Good Standing Certificates for foreign (non-U.S.) entities can often be challenging, if not impossible. (Click here for more information.)
A full entity compliance audit may include the following for each party to the transaction:
- Exact legal name, date of filing and organization ID number on record with state
- Current entity status, plus any fees or franchise taxes owed
- Next annual report due dates
- Principal business address on record for each entity so you can identify old addresses to be updated
- Current registered agent so you know who to reach out to if you have not received tax notices from certain states
When you first hear about a deal, you may not know the names of all of the entities that will be involved in the transaction. But if you know the type of deal and the states/countries for which you will need documentation, you can check general turnaround times in those jurisdictions. Any lengthy turnaround times can then immediately be communicated to the attorneys you are working with so that there won’t be any unpleasant surprises.
As retired four-star general and former Secretary of State Colin Powell once said:
“There are no secrets to success. Success is the result of preparation, hard work and learning from failure.”
Ensure your closings are not delayed because of good standing issues by preparing in advance, knowing what to expect and learning from past mistakes.
Can you relate to this situation? Share your stories and solutions with us here!
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.