Summary

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, qualifying businesses may seek up to $10 million under the Paycheck Protection Program (PPP) for funding payroll and business expenses. The US Small Business Administration (SBA) guarantees the loans, and the full principal amount of the loans and any accrued interest may qualify for loan forgiveness. For many businesses, PPP loans have served as a lifeline during the COVID-19 pandemic.

We are still in the early days of the economic shock of the coronavirus, with positive trends not yet clear. Restructuring specialists at Keystone Law have combined our experiences of enquiries from businesses, Insolvency Practitioners (IPs) and other stakeholders during lockdown and noted the following developments which will help businesses and advisors prepare for a post-lockdown business environment:

It’s becoming apparent that despite the government’s intervention with business rate holidays, relief against forfeiture and furloughing of staff during the coronavirus pandemic, many licensed, leisure and retail businesses are in dire straits as a result of closure. Whilst emergency insolvency legislation is in place to provide a breathing space for companies, this will only help financially distressed but viable businesses. As a result, it is unfortunate that insolvencies already reported in the press will just be the tip of the iceberg.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act.”The legislation includes a historic $2 trillion aid package intended to stabilize the U.S. economy and provide disaster relief aid to American citizens and businesses impacted by the COVID-19 pandemic. The emergency aid package, which is by far the largest in American history, contains many provisions focused on providing relief. Among these are certain temporary amendments to Title 11 of the United States Code (the “Bankruptcy Code”).

Under Finance Bill 2020, HMRC will move up the insolvency order of hierarchy from unsecured creditor to secondary preferential creditor status in respect of:

INTRODUCTION

In times of unprecedented market uncertainty, assessing financial exposure to your counterparties is essential. Volatility in the commodities markets and a public health crisis create the perfect storm for financial distress for companies in nearly every industry. Risk is inherent in business and that risk is heightened when you are dealing with a company in financial distress. Managing these risks begins with knowing your counterparties and understanding your legal position with respect to those counterparties.

Businesses will be considering dramatic changes over the next few days and weeks. The Government last week closed certain business such as pubs, theatres, restaurants and cinemas. Last night, the Government went further and ordered that all non-essential retail businesses and hotels should close and that people should not leave their homes to work unless it absolutely cannot be done from home.

Countries across the world are actively taking measures to stem the spread of COVID-19 by encouraging and, in some cases, forcing social distancing. One of the most common measures employed so far is the closing of non-essential stores, bars and restaurants for several weeks, if not longer. Several large retailers, such as JCPenney, Ross Stores, Kirkland’s Inc., Marshalls and TJ Maxx, have announced store closings for two weeks in efforts to help stop the spread of COVID-19.

With coronavirus causing unprecedented distress to the whole global economy, all types of business in every sector will be affected. These are not normal times, and it is clear that all businesses will need to formulate coherent action plans to survive. The Government appears to be working on emergency plans to provide help to trade and industry that has already been badly affected by underlying economic uncertainties. More high-street names have closed their doors this week.