Cyber Attacks Continue to Grow as a Threat to Small Businesses

In today's technological world, cyber attacks have become all too common. Last week, government spokesmen admitted that hackers accessed private information of up to 14 million federal employees in early June. Many times, the public is notified of larger breaches against the government or corporations like Home Depot and Target, but small businesses are up against the same threat as well and, without the same level of resources to stave off such attempts, may be even more susceptible.

"Small businesses are increasingly becoming a popular target because they generally don't have the same resources to spend to build up a strong, defensive infrastructure like a large corporation can," said Todd Wachob, senior credit risk manager for Paychex, Inc. "Small businesses are highly volatile ... they can go from being a very healthy business one month to being a very weak business months later."

Paychex, which processes payroll for 580,000 small businesses, maintains a close relationship with federal law enforcement due to the nature of their business and the ongoing threat of online hackers. New types of attacks surface daily, existing schemes continuously evolve and there is an increased sophistication among perpetrators. "Fraudsters are some of the more intelligent people you're going to deal with—not all of them, but a lot of them," said Wachob, who was a speaker at the 119th Credit Congress in May. "And they're generally very innovative."

One of the most common cyber attacks is a mass email sent to a company claiming to be from the Better Business Bureau. The email says a complaint has been filed against the company and asks the recipient to click on the link to review the complaint. "Inevitably one or more of us is going to click on the link and what happens? It's going to download malicious ware on your system," Wachob said. Hackers then may have access to company passwords or other confidential documents, as well as employee information.

Some of the best practices for protecting data against cyber attacks is to use strong passwords and change them regularly, verify unexpected emails, update software regularly, never download unfamiliar software or click on pop up links and restrict access to job requirement levels.



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Last Minute Deal Gives Trade Deal Life After Long Fight

There have rarely been such intense lobbying efforts on the part of the Obama White House as there were to garner Congressional approval of trade promotion authority. In the end, they enabled a deal in the Senate that will snatch victory for President Barack Obama's prized trade platform from what seemed like certain defeat.

The Senate has passed legislation that will grant Obama "fast-track" authority, meaning the president can negotiate trade deals and present them before Congress for amendment-free voting. Obama needs this authority to bring the 12-nation Trans-Pacific Partnership (TPP) to conclusion despite intense opposition coming mostly from within his own party.

It was clear that few Congressional Democrats were very comfortable with Obama and Republicans in lock-step on an issue. Even Democrats in states that depend on trade and would benefit from better access to emerging Asian nations could not bring themselves to back authority that will likely lead to the TPP's completion. After all, there also continues to be intense opposition from the unions and the progressive wing of the party.

In the end, 60 senators voted in favor of re-establishing the authority, the same number of lawmakers who days earlier blocked a move brought by a far-right Republican that would have closed down debate on the legislation. With the pact heading to the president's desk by the end of the week, Obama will now be part of a global meeting on the trade pact next month and the long-delayed TPP will likely become a reality.

Foreign policy has not been viewed as Obama's strong suit as a president, and he has few global allies of note. Even as Obama has been a supporter of trade in the past, nobody expected this kind of determination. Still, the president's team of economic advisors is largely in favor of free trade and believes that the U.S. economy needs global engagement to thrive, emphasizing exports and the kind of jobs such activity generates.



MLBS is an Extension of Your Staff

At NACM’s Mechanic's Lien & Bond Services, we take pride in handling your projects and treating them as if they were our projects—double- and triple-checking our work for accuracy. We’ll answer your technical questions and meet your needs, all through a simple online interface.

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A Quick Restructuring Fix Can Be Costly Later

Bankruptcy done well can give a struggling company breathing room as it solidifies its financial footing. Moving through the process too quickly, however, could mean a company is setting itself up for a return to Chapter 11.

Speakers from a panel at the 31st Annual Bankruptcy & Restructuring Conference of the Association of Insolvency & Restructuring Advisors renewed the debate about the issue of fast restructuring, through methods such as "prepack" filings, earlier this month. As reported by various media outlets, panelists suggested that a quick exit could significantly raise the risk of a return trip to the bankruptcy court for the company involved. This could be attributed to the use of hedge funds and other alternative investors instead of traditional banks due to regulatory tightening as a factor for the shortened length of time for Chapter 11 proceedings (to less than a year) in 2014.

A number of attorneys who have served as frequent NACM contributors had their own take when asked for their analysis on the trend of rapid restructuring. Participants should not use length of time as a measure of success, said Karen Hart, Esq., a partner with Bell Nunnally & Martin LLP. "The quality of time spent on the plan of reorganization and the quality of the plan should be the measure of a likelihood of success. Rushing to confirm may very well be a recipe for disaster down the line." Six months, for example, might be sufficient for a small- to medium-sized company, but it may not be enough for a large company with a large, complex debt load, she noted.

While businesses often organize a prepack bankruptcy where major parties cut deals before filing, in other instances a structured disposition—where the assets are sold to a buyer—enters into play, said Lynnette Warman, Esq., of Culhane Meadows PLLC. In these situations, bankruptcy is much faster.

"A bankruptcy used to take up to two years," said Bruce Nathan, Esq., a partner with Lowenstein Sandler LLP. "Now, that is the exception." Navigating in and out of bankruptcy court too fast often resembles an effort to make a quick fix to a balance sheet without a proper effort to actually fix problems ailing the business overall, he added.

Robert Bernstein, Esq., a partner with Bernstein-Burkley, P.C., said the expense and risk of being in Chapter 11 serves as a pressure point. "Companies and courts try to move cases along and get them out of Chapter 11 quickly," Bernstein said. "That often results in either getting money from people who are not in for the long term because of their goals, or because of the interest rate expense, or kicking issues down the road which, if not resolved, can cause the second filing."

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has also contributed to shortened restructuring proceedings, said Wanda Borges, Esq., of Borges & Associates. Even with the federal provisions, Borges believes that many Chapter 11 cases today are simply liquidating as opposed to reorganizing. There are simply fewer surviving debtors than in the past.



There are Changes in the Law Every Year. Are You Keeping Up?

NACM’s Manual of Credit and Commercial Laws is reviewed and updated regularly to reflect the latest changes in state and federal laws and other areas of business practice such as mechanic's liens. It's available from your NACM Bookstore in a highly flexible and affordable format—four volumes that may be purchased separately or as a complete set.

Available now, Volume III: Construction Issues has been completely revised for 2015. Individual state statutes have been updated to reflect new laws passed in 2014.

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Lien and Bond Roundup: Court of Appeals/Alabama, Federal Retainage Legislation, Nevada

In what American Subcontractors Association (ASA) spokesmen called a "big win" for subcontractors and the construction industry, the U.S. Court of Appeals has reversed an Alabama Supreme Court decision that would have given insurance companies loopholes to avoid paying out claims. Though subcontractors walk out of this situation as winners, material suppliers could also receive a downwind positive bump.

In reviewing the Alabama case, Pennsylvania National Mutual Casualty Insurance Company v. St. Catherine of Siena Parish, the appellate court effectively strengthens protections to insurance coverage packages subcontractors pay for and rely upon in the case of damage or defective claims.

"Contractors rely on the integrity of insurance companies to limit their liability on many fronts, from workers compensation to payment and performance and all parts in between. On the flip side, insurance companies limit their liability on what constitutes a valid claim," said Chris Ring, of NACM's Secured Transaction Services. "Contractors on 'large' construction projects should review the scope of works on the projects and review that with their insurance carrier to assure (sometimes with help of legal counsel) that the policy limits their liability for that particular project. It's not prudent or practical for contractors to place this type of scrutiny on every project; it's up to each contractor to define what 'large' is."

The benefit for suppliers on such projects is simple: Subcontractors who aren't paying out of pocket for large expenses that weren't budgeted for or held up in lengthy legal actions are much more likely to have money to pay those providing the materials for the job faster.

In other news, the Senate passed the National Defense Authorization Act for Fiscal Year 2016, which once included individual surety protections, but not before eliminating those construction industry-friendly provisions. They will not be re-inserted before a pending House of Representatives vote, though sources tell NACM that an attempt to connect it with other pending legislation is likely in July. Legislation designed to establish clearer standards for assets pledged by an individual surety on federal construction projects included statutory language designed to require an individual surety to solely pledge assets currently allowed by law directly to the government and place those assets in the care and custody of a federal entity. It also sought to increase the amount of surety bond guarantees from the Small Business Administration from 70% to 90%. Some lawmakers expressed frustration with attempts to tuck in unrelated provisions within the massive defense spending measure.

In Nevada, legislation has been signed into law amending state retainage language. Retainage is the dollar amount an owner holds back until project completion as leverage to assure that the project is completed on time. Now, only 5% retainage fee can be held back from subcontractors by general contractors (or by a public entity) on a project—it was formerly double that. For contractors and material suppliers, the former amount of 10% can cause financial problems. "Dollar amounts owed for retainage are not released until project completion and their right to file a mechanic's lien to secure that dollar amount often expires before project completion," said Ring. "With this reduction in percentage, it eases the financial burden for those parties." Nevada also recently passed unrelated laws that improve regulation of consolidated insurance requirements on construction projects and mandate a minimum rating of insurers involved, according to ASA.



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