Congress passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act), providing a two trillion dollar economic stimulus for U.S. industries and citizens affected by the COVID-19 coronavirus. The legislation is expected to be signed into law shortly. Included in this legislation are provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief.

Bankruptcy & Creditors’ Rights Alert

Small businesses often struggle to reorganize in bankruptcy. To address this issue, Congress passed the Small Business Reorganization Act of 2019. The act took effect in February 2020 and makes small business bankruptcies faster and less expensive. At the time of enactment, the act only applied to business debtors with secured and unsecured debts less than $2,725,625.

“Only when the tide goes out do you discover who’s been swimming naked” – Warren Buffet

The tide has gone out on the municipal finance market.

While much of the discussion about the financial fall-out of the COVID-19 virus has focused on the massive wealth destruction in stock markets and pressure on corporates around the world, the impact on the largest financial market in the world- the $3 trillion US municipal finance market- cannot be ignored. Simply put, the market is imploding.

An overview of how the coronavirus disease (COVID-19)impacts reorganization for small businesses.

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 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

While the impact of the coronavirus disease (COVID-19) is as of yet uncertain, one thing is clear: the global outbreak of COVID-19 has caused − and will likely continue to cause − a precipitous decrease in demand and supply as a result of quarantine orders, business closures, and social distancing, all aimed at flattening the curve of the pandemic. As a result, a dramatic and pronounced economic downturn is predicted as the pandemic’s impact touches virtually all businesses, regardless of geography or industry.