The American bankruptcy process is geared towards providing (a) financially distressed businesses and individuals with a “fresh start” and (b) their creditors a fair opportunity to address their claims. Much of that process takes place in bankruptcy courts all over the country on a daily basis. So, what effect does a pandemic, such as the novel coronavirus (and its attendant disease, COVID-19), have on the administration of bankruptcy cases in the U.S.? Of course, the federal, state and local restrictions on public gatherings create a challenge for U.S.

The below chart summarizes the modifications to certain protocol and procedures of major US Bankruptcy Courts in light of the recent COVID-19 outbreak. At the moment, the chart includes the US Bankruptcy Courts for the District of Delaware, the Southern District of New York, the Northern District of Illinois, the Eastern District of Virginia, and the Southern District of Texas. Mayer Brown will continue to monitor the situation in the days and weeks to come, and will update the chart accordingly.

BANKRUPTCY COURT

STATUS

ACCESS & ENTRY RESTRICTIONS

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.

Boards of directors across the U.S. are currently wrestling with existential threats arising from the COVID-19 pandemic. In addition to the logistical and productivity challenges that come with decentralizing entire workforces, entire industries have seen unprecedented decreases in short term demand (or, increasingly, being subject to forced closures as “non-essential businesses”) piled on already-thin margins.

In the midst of the COVID-19 pandemic, many commercial landlords may be wondering whether they’ll receive their next rent payment as tenants struggle to make ends meet. Landlords and tenants alike should be prepared for a bankruptcy filing by the lease counterparty. This memorandum primarily focuses on the rights and remedies of landlords facing a tenant’s bankruptcy filing. We are continuing to monitor proposed state and federal government moratoriums on the filing of eviction actions, and will provide further guidance should any be imposed.

Setoff is a right that allows a creditor to offset a prepetition debt owed to a debtor with its prepetition claim against the debtor.  See In re Luongo, 259 F.3d 323, 334 (5th Cir.

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.

Setoff is a right that allows a creditor to offset a prepetition debt owed to a debtor with its prepetition claim against the debtor. See In re Luongo, 259 F.3d 323, 334 (5th Cir. 2001). This remedy is aimed at preventing the inequitable and inefficient result that occurs when a creditor is forced to pay a 100% of its prepetition debt owed to a debtor, without resolving its prepetition claim. In such circumstances, the creditor is often forced to later prosecute its unresolved claim against the debtor and is commonly only awarded a fraction of the value of its claim.

The business, economic and financial fallout from the COVID-19 pandemic cannot be understated. While our families, friends, and clients are adjusting to these difficult, uncertain and stressful times – protecting our families, friends and communities from the spread of the virus, working from home, avoiding public spaces, and social distancing – businesses large and small are suffering from shutdowns, closures, breaks in supply chains, and the loss of business and revenue.

The economic havoc unleashed by the COVID-19 crisis in most sectors of the economy will affect businesses and their employees, servicers, customers, and others for the foreseeable future. Among those that are directly and critically affected are banks and other lenders, commercial landlords and tenants, restaurants, and the travel and hospitality industries. All of these areas will see an increase in bankruptcy filings and other insolvency proceedings in the near term. Here is a short guide for some of the issues that will arise in the coming months.

Landlords