For those following the fallout from the Fyre Festival, the drama continues. Last week, model and influencer Kendall Jenner settled a bankruptcy lawsuit for $90,000 relating to her promotion of the Festival.
As the novel coronavirus (COVID-19) pandemic continues to devastate economies worldwide, we’re seeing a wave of Chapter 11 bankruptcy filings. These filings, which provide protection to companies as they reorganize their businesses so creditors may be paid over a period of time, have surged 26% in April (up from the 444 filings in April 2019).
The economic impact has been far-reaching. Notable examples include:
As the COVID-19 pandemic continues to cause harsh economic conditions throughout the United States, many companies face the difficult prospect of bankruptcy. Smaller businesses in particular have had to endure significant pain as a result of state-mandated closures and stay-at-home orders and public fear about the virus. Certain industries, such as leisure, dining, and travel, have been hit especially hard.
At the time of this writing, it’s not exactly another day in paradise, over 103,000 Americans are no longer with us, there are an estimated 1,500,000 confirmed U.S. cases of the coronavirus, and I am also ballparking at 40,000,000+ unemployment claims filed at the time of this writing, because just two weeks ago it was at 36,500,000. Obviously, it’s not hard to see and hear more gloom and doom in the news about the plummeting economy in the U.S.
Leveraged loans continue to be a topic of interest in the current environment, particularly when they are pooled and securitized as collateralized loan obligations. A recent decision sheds light on whether and when leveraged loans and similar instruments may be classified as securities and, therefore, be subject to securities laws.
Guiding a business as a chief executive officer is difficult in the best of times. In the midst of a pandemic, uncertainty is rampant. However, in that uncertainty often times there is opportunity.
Sometimes Chapter 11 is a viable and appropriate strategy for an organization to right size its balance sheet and adjust its long term contracts. CEO's must adapt to changing circumstances. Careful consideration of the impacts - both positive and negative - of Chapter 11 can be critical to guiding an organization and in some cases, it may allow a business to thrive.
Permanent Reforms
Moratorium: a new stand-alone moratorium to provide businesses with an initial 20-business-day stay from creditor action.
May Restructuring Activity
May 4 – OneWeb Global Ltd., which filed for Chapter 11 bankruptcy protection in the United States in March, received multiple initial letters of interest from potential purchasers. Final binding bids are due June 26, along with a deposit equal to 10% of bid value, and an auction is scheduled for July 2.
The bankruptcy trustee of a bank holding company was not entitled to a consolidated corporate tax refund when a bank subsidiary had incurred losses generating the refund, held the U.S. Court of Appeals for the Tenth Circuit on May 26, 2020. Rodriguez v. FDIC (In re United Western Bancorp, Inc.), 2020 WL 2702425(10th Cir May 26, 2020). On remand from the U.S. Supreme Court, the Tenth Circuit, as directed, applied “Colorado law to resolve” the question of “who owns the federal tax refund.” Id., at *2.
