Impact of Coronavirus on Bankruptcy Filings
The Coronavirus (COVID-19) pandemic has wreaked havoc upon the financial system and businesses across the world. It has been especially disruptive for brick-and-mortar commercial institutions. Such effects will likely lead to a drastic increase in bankruptcy filings, out-of-court workouts, liquidations, debt restructurings, and other lender/borrower negotiations.
Supply chains have been interrupted due to the no-contact preventive measures. These measures that have been adopted across the country (and world-wide) to slow the spread of the virus. Other measures, such as suspension of gatherings and implementation of curfews, will likely lead to substantial losses for businesses.
Affected businesses may have trouble honoring their financial obligations including making timely payments or satisfying loan ratio requirements. Even businesses with strong balance sheets may be forced to declare bankruptcy to restructure their debts or workout their loans based on cash flow issues. The economic impacts of the pandemic on your personal or business finances will be transformative, and one must understand the variety of measures one can take to address this widespread financial distress.
Tourism and service industries will likely see the brunt of the impact
The COVID-19 outbreak has already severely impacted tourism and service industries across the nation. Due to quarantines, social distancing guidelines, and “stay at home” orders issued by local government, tourism has already been significantly effected. Governments are closing borders, hotels are closing up shop, and international flights have come to a virtual standstill. The hospitality industry will likely remain closed until experts determine it is safe to reopen (there is no certainty on when this will be). Other sectors that are the most likely to see significant declines due to the Conoavirus (Covid-19) include physical, brick and mortar stores, markets, and other “non-essential” service and entertainment industries. If you are involved in the services or hospitality industry, please call us. We may be able to save your business through a loan restructuring, work-out, forbearance agreement or bankruptcy reorganization.
Commercial contracts will be impacted
The capacity of business partners such as suppliers, manufacturers, retail partners, joint venturers, and contractors to fulfill their contractual obligations will be affected. It is plausible that many business will invoke the “force majeure” or “impossibility” provisions. In that respect, Coronavirus (COVID-19) might qualify as an unforeseen event outside the control of the business partners, e.g. force majeure. Many contracts include “force majeure” terms but all are different. Your specific contract must be carefully reviewed and analyzed by a qualified lawyer to give you advice and guidance on how it might apply under these circumstances.
Under common law, a signatory to a contract may be relieved off his or her contractual duties and obligations depending on the terms of the “force majeure” clause contained in the contract at issue. Individuals and business owners alike should contact our office to assist in the review and analysis of their contracts to obtain guidance on whether Coronavirus (COVID-19) qualifies as a “force majeure” event.
Coronavirus (COVID-19) stimulus packages
Should social distancing guidelines and “stay-home” orders continue to be implemented over an extended period of time, small businesses could be severly impacted. Some small businesses will likely experience a loan default, rent default, or other contractual default. These defaults will likely create insolvency situations that could be resolved through bankruptcy reorganization or out-of-court workout efforts. While the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) might assist your small business from short-term economic hardship brought by COVID-19 pandemic, you should consider whether your business could also be benefitted by negotiating with creditors informally, formally, or through a federal bankruptcy action.
In a significant change, the CARES Act increases the debt limit of small businesses seeking to restructure their debt through a chapter 11 bankruptcy. The new debt limit is $7.5 million (up from $2.7 million). The updated bankruptcy eligibility criteria may allow your business to restructure under protection of the bankruptcy court and remain afloat during the pandemic and set your business for a successful re-launch after pandemic has been contained. “Small business” bankruptcy cases are anticipated to be faster, less costly, and more efficient for qualified business bankruptcy reorganizations.
Additionally, the revisions under the Small Business Reorganization Act of 2019 (SBRA) might help ensure that business can file for bankruptcy and initiate business reorganization proceedings swiftly and less litigiously. The enactment of the CARES Act may give your business the best chance of a successful reorganization. The Bankruptcy Code and the raising of small business debt eligibility will likely allow your business to remain operational after the Coronavirus (COVID-19) pandemic has been overcome.
Coronavirus presents an unprecedented economic challenge. It is sure to disrupt how businesses are conducting their operations. Small businesses may have trouble meeting their financial obligations, and as a result many small business and individuals may find good reason to file for bankruptcy, reorganize their debt, restructure their debt, obtain forbearance of debt obligations, or speak with bankruptcy and insolvency counsel.
Do you or your business need to file for Bankruptcy as a Result of Coronavirus?
If you or your business are having any kind of financial difficulty, please consider contacting Edelboim Lieberman Revah Oshinsky PLLC. Our bankruptcy lawyers regularly deal with insolvency, out-of-court workouts, forbearance agreements, debt restructuring, loan workouts, and all kinds of settlements and agreements long before Coronavirus hit our shores, and we will continue to save businesses into the future. Edelboim Lieberman Revah Oshinsky PLLC is here to help. Our bankruptcy attorneys are , astute, prepared, experienced and highly regarded Bankruptcy and Workout Lawyers, and we are available to explore all of your financial and economic issues.