In 2019, the increased wave of distressed health care companies continued, and with downward pressure on reimbursement rates, regulatory changes, decreased occupancy rates and technological advances, this trend is unlikely to subside in 2020.

Health care providers often are heavily dependent on revenues from government programs such as Medicare and Medicaid, accounting for nearly 40% of national health care spending in 2018. Therefore, a Medicare payment suspension could cripple a health care provider.

The global coronavirus (COVID-19) crisis continues to have a devastating impact across all segments of the entertainment industry.

The question is no longer whether the volatility created by the COVID-19 pandemic will deepen the difficulties businesses and other institutions face in the coming months, but by how much and in what ways. In the past few weeks, we have offered client mailings and webinars on COVID-19-related topics, and we will work to keep you informed of important developments as these issues evolve. Included below are updates to our recent commentary, with answers to questions we have been receiving.

Corporate

Impact of COVID-19 on M&A

Insolvency in the construction industry is not just isolated to contractors, sub-contractors and consultants. Industry and economic pressures can affect all parties, including at times employers, therefore it is equally important for contractors to carry out due diligence when bidding for projects and to consider contractual mechanisms that can be put in place to protect against non-payment by the employer and insolvency risks.

A survey of recent rulings by judges from the bankruptcy courts for the Southern District of New York and the District of Delaware suggests that judges in these districts have very different views about the nature and extent of “consensual” third-party releases that may be approved in a given case. The data also indicates that their thinking on this issue continues to evolve as they confront new arguments.

A series of decisions over the past year — on issues such as make-whole premiums, intercreditor agreements, backstops for rights offerings and nonconsensual third-party releases — will likely have a significant impact in 2020 on parties involved in bankruptcy proceedings.

Fifth Circuit Reverses Course on the Enforceability of Make-Whole Premiums in Chapter 11

The number of corporate Chapter 11 filings in the United States remained relatively low in 2019. An estimated 6,000 business bankruptcies were filed (based on the data available at the time of writing), which, if it holds up as the data is finalized, is essentially flat from 2018 and down 56% from the peak reached in 2009, following the Great Recession. The chart immediately below depicts corporate Chapter 11 filing volume over time.

As we had anticipated in our prior client alerts,¹ the “customer” safe harbor defense to constructive fraudulent conveyance claims challenging securities transactions — which was flagged by the U.S.

Wrongful trading rules, which can result in directors being personally liable for losses incurred as a result of continued trading, are being temporarily suspended in recognition of the large number of businesses being impacted by COVID-19. While this news will be welcomed by businesses across the UK, directors should not be complacent about their responsibilities.

For many years an insolvent company’s creditors have had their cake and eaten it where a gratuitous alienation for inadequate consideration has been successfully challenged.