The decisions made and actions taken, or not taken, by companies and their directors in response to the COVID-19 crisis are being intensely scrutinised by regulators, shareholders, and creditors alike. It is anticipated that some businesses may face claims relating to their poor contingency planning and their practical and wider reactions to the crisis. So, an increase can be expected in claims on directors and officers (D&O) insurance policies.
In the very unusual period in which we find ourselves today, it seems to be common wisdom that an avalanche of commercial loan defaults is coming. As such, it is a good time to take a fresh look at the terms and provisions used in commercial workout documents, whether in a simple agreement that extends a maturity date or in a complex forbearance document that restructures the collateral arrangement and financial covenants.
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COVID-19 Webinar Series
The High Court has dismissed applications to restrain the presentation of winding up petitions for reasons relating to the Covid-19 pandemic.
On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act was signed into law and provided an additional $310 billion for the Paycheck Protection Program (PPP). The Small Business Administration (SBA) resumed accepting PPP loan applications on April 27, 2020. In light of the quick exhaustion of initial PPP loan funds, eligible businesses should apply for PPP loans soon to increase the likelihood of receiving available funds.
The SBA has also provided additional guidance for entities applying for loans.
Small businesses often struggle to reorganize in bankruptcy. To address this issue, Congress passed the Small Business Reorganization Act of 2019 (the SBRA). The SBRA took effect in February 2020 and makes small business bankruptcies faster and less expensive.
There have been debates for years about the pros and cons of owners withholding retainage (usually 5% or 10%, depending on each state’s retainage laws or local “industry standard”) from prime contractors. Typically, the primes will, in turn, withhold retainage from all subcontractors. However, in these crazy times, when the future of private and public projects is unknown and profit margins are in question, it might be a good time to revisit this issue.
In a potentially ground-breaking decision, Judge David R. Jones of the United States Bankruptcy Court for the Southern District of Texas temporarily enjoined the Small Business Administration (SBA) from denying a Paycheck Protection Program (PPP) loan to Hidalgo County Emergency Service Foundation due solely to its status as a Chapter 11 debtor in bankruptcy. While the order will expire on May 8, 2020, and only applies to Hidalgo, the order could mark a significant change in the SBA’s administering of the PPP.
Background
Under the Scheme, furloughed employees, whose services cannot be used due to the current COVID-19 pandemic, will not be permitted to work for their employer during the period of furlough but the employer will be able to apply for a grant from the government to cover the cost of continuing to pay the employees 80% of their salary up to a cap of £2,500 per month.
On March 27, 2020, President Donald Trump signed into law the third major coronavirus-related legislation in the last several weeks – the Coronavirus Aid, Relief, and Economic Security (CARES) Act – in response to the pandemic and resulting economic crisis. The CARES Act includes substantial federal spending and loan commitments that will benefit individuals and businesses.