Coronavirus - Bankruptcy & Reorganization Law Update
With the havoc being wreaked by the COVID-19 virus on businesses and supply chains, shuttering many businesses and decimating certain industries, business owners and management are seeking guidance to help mitigate their risk of financial distress. Following is a checklist with specific action items for decisionmakers to review, recognizing that every situation is unique and there is no universal solution that will fit every business scenario in our current unprecedented economic environment. Riker Danzig’s Bankruptcy and Reorganization Practice Group has a deep bench and is available to help you through this difficult situation.
Crisis Management “To Do” Checklist
- To the extent possible, evaluate company-wide ability of employees to operate remotely, including, but not limited to, all administrative staff.
- Consult human resources and employment counsel regarding procedures and protocols for furloughs, layoffs or terminations. Be aware of legal obligations in terms of paid/unpaid time off, advance notice requirements of pay cuts, and ensuring continued compliance with applicable exempt/nonexempt wage and hour laws.
- Evaluate potential exposure under state and federal WARN, wage and hour, and other employment laws. Compliance with these laws, and timing of required notices and payments, is very important, particularly if you may ultimately need to file for bankruptcy protection.
- Consider whether to borrow, obtain additional loans, including small business loans, including fully drawing down on current bank line availability.
- Determine, anticipate, and calendar critical dates, including, but not limited to:
- Loan/credit facility maturity dates
- Debt service payment due dates
- Material contract/lease payment due dates
- Due dates for normal accounts payable and accounts receivable
- Prepare financial projections and cash flow projections.
- Review loan agreements and other financial documents to understand potential breaches of covenants.
- Address and remain current on federal and state withholding, employment, and sales taxes. Certain corporate officers and employees face potential personal liability if such taxes and wages remain unpaid (particularly for “trust fund” taxes that are withheld from employees’ pay or collected from customers), even if the company files for bankruptcy protection.
- Identify costs and expenses that potentially can be restructured, eliminated, reduced or suspended.
- Review contracts, and consult with legal counsel where necessary.
- Evaluate whether employee travel should be eliminated or reduced. Consider videoconference or teleconference in lieu of travel.
- Review insurance policies for potential business interruption coverage.
- Do not be afraid to communicate with your lenders, customers, vendors, suppliers or counterparties.
- For material supply contracts, evaluate potential use of any relevant contractual provisions and consider supply chain issues. Consult with legal counsel where necessary.
- Communicate with vendors to address supply issues and extended payment terms, and to address whether certain orders can be cancelled or deferred.
- Communicate with customers to discuss whether they expect to slow down or cancel purchases, and prepare a protocol to address requests for extended payment terms.
- Consider and be prepared to address potential out-of-court forbearance or restructuring discussions with lenders or other creditors. Be prepared. Consult with legal counsel early regarding same.
- Consider retaining public relations or crisis management professionals. Again, consult with legal counsel early regarding same.
- Very importantly, engage professionals such as legal counsel as early as possible in the process. If bankruptcy protection is a likely outcome – either to restructure debt or sell the business assets in an orderly manner – have a strategy in place early, with input from legal counsel, to ensure appropriate messaging to customers, suppliers, employees, and other key stakeholders.
- Monitor and become familiar with potential state and federal economic assistance programs.
Riker Danzig’s Bankruptcy & Reorganization Practice Group, under the leadership of its Chair, Joseph L. Schwartz (973.451.8506;firstname.lastname@example.org), is actively evaluating cogent and efficient strategies to best address all relevant issues, and stands ready to assist clients and business associates in charting an efficient and sound course of action to address mounting challenges.
Please visit Riker Danzig’s COVID-19 Resource Center to stay up to date on all related legal issues.