Background

The COVID-19 pandemic has led certain infrastructure businesses to face significant disruptions to operations and revenues, giving rise in many instances to breaches or potential breaches of finance documentation. This article considers at high-level issues to be mindful of when undertaking waiver processes to address such breaches.

Potential Waivers

Financial Covenants

In This Issue:

U.S. Supreme Court: Creditors May Immediately Appeal Denials of Automatic-Stay Relief

As courts across the country deal with scaled back operations due to the COVID-19 pandemic, bankruptcy courts in New Jersey and Delaware have issued novel orders to address the impact of the virus on certain debtors. Last month, debtors in the chapter 11 bankruptcy cases of Modell’s Sporting Goods, Inc. and CraftWorks Parent, LLC each sought and obtained court orders suspending certain case activity which, for all intents and purposes “mothballed” the cases for a certain period of time.

The CFTC proposed amendments intended to "comprehensively update" its bankruptcy regulations (Part 190 of the CFTC regulations) to "reflect current market practices and lessons learned."

In the proposal, the CFTC provided:

When a company’s customers declare bankruptcy, the company faces significant risk. These risks range from the obvious—for example, nonpayment of past-due invoices—to the not-so-obvious—e.g., preferential and voidable transfer actions. Given that multiple industries, including retail and food service, have been sidelined due to COVID-19, businesses will likely find many of their individual and commercial customers in vulnerable situations for the immediate and intermediate future.

Guest Author: Karlene A. Archer of Karlene A. Archer Law P.L.L.C.

Consumers that have pending Chapter 13 bankruptcy cases undoubtedly suffered from financial hardship prior to the COVID-19 pandemic. For many of those consumers, the pandemic may have exacerbated that hardship. The CARES Act’s mortgage forbearance provisions allow some breathing room for consumers that anticipate a temporary inability to pay their mortgage. These provisions also apply to consumers in bankruptcy and in that sphere present unique difficulties.

 Australian satellite-based IoT startup Sky and Space Global Ltd. filed for Voluntary Administration in Australia, the equivalent of a Chapter 11 bankruptcy in the United States. April 13 – OneWeb Global Ltd. (OneWeb), which filed for Chapter 11 bankruptcy protection in the United States last month, announced that it secured a commitment from its largest secured creditor, SoftBank Group Corp., to provide up to $75m in debtor-in-possession (DIP) financing to fund its ongoing operations during the bankruptcy proceeding. The DIP financing proposal was approved 

When a company faces financial distress and seeks to sell its assets, both the seller and the buyer may prefer to implement the transaction through a Section 363 sale in a Chapter 11 bankruptcy case of the seller. A Chapter 11 sale process provides certain protections to the buyer from fraudulent transfer and other claims of the seller’s creditors, and a seller may be able to maximize the purchase price of its assets through a Section 363 auction process.

Faced with constantly evolving circumstances in these challenging times, officers and directors should not lose sight of what is arguably their most important corporate role–that is, as a fiduciary. The question, particularly as a corporation’s financial situation changes and restructuring is being considered, is: Who is that fiduciary duty owed to? Unfortunately, the answer depends on whether the corporation is insolvent or near insolvent, which is why being vigilant now will help avoid scrutiny by creditors later.

Many companies are currently experiencing dramatic reductions in revenues due to the COVID-19 pandemic. Such companies (along with their investors and creditors) are justifiably concerned that they may need to restructure and even potentially seek bankruptcy protection. Below is a list of items that any potentially distressed company should attend to as soon as possible to increase the likelihood of obtaining the most favorable outcome under the circumstances.

I. Focus on Cash