January 28, 2021

Volume XI, Number 28

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COVID-19 Is Destroying Our Economy, Don’t Let It Destroy Your Businesses

As we all practice social distancing to avoid the spread of COVID-19, businesses cannot escape the economic impact of the pandemic. With an economic recession on the horizon, the depths of which cannot be fathomed, it is crucial that businesses act proactively to address their obligations owed to creditors. The most crucial creditors on the list are a business’ lender and landlord.

Whether a default has already occurred or one is imminent given the damage being caused to the economy by the pandemic, now is the time to address these issues.

Loan Obligations

COVID-19 requires business owners to address multiple issues concerning loan agreements, including:

  • Are you in breach of financial covenants in your loan documents?

  • Have you missed a payment?

  • Has a default under another agreement triggered a cross-default provision in your loan documents?

  • What can be done once the lender has accelerated the amounts due on the loan?

  • Can you obtain an increased credit facility or a line of credit as you struggle to resume business operations?

  • Do your loan documents contain a material adverse change clause, and if so, will your lender attempt to utilize that as default?

Addressing any one of the above issues requires open communications with your lender. There are options available to business owners as large and small banks are offering debt relief plans, which are not simply for individuals seeking to save their homes from foreclosure.

If you are already in default, the negotiation of a forbearance agreement is possible. Under a forbearance agreement or standstill agreement, a lender refrains for a specified amount of time from taking any action to enforce its rights (including commencing a lawsuit, recovering collateral, or foreclosing on real property) in exchange for payment. A borrower may utilize the time to wait out the pandemic, refinance the loan or if possible, simply cure outstanding arrears on the loan and reinstate the loan with the original maturity date. Bankruptcy protection is also an option, but an option that we explore as a last resort.

Lease Obligations

Similarly, COVID-19 raises a host of issues for business owners concerning a lease agreement, including:

  • Does the lease agreement contain a force majeure provision, which relieves a party from performing under an agreement as a result of circumstances beyond its control, which can be relied upon? If so, does the force majeure provision apply to payment obligations?

  • Is there a casualty clause in the lease which excuses performance?

  • Does the company maintain a policy of business interruption insurance coverage?

In New York, there is currently a moratorium on commercial eviction actions and, as such, the time is ripe to negotiate with your landlord.

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©2020 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume X, Number 78
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About this Author

Melissa Anne Peña Bankruptcy Lawyer Norris McLaughlin
Member

Melissa A. Peña, Chair of the Bankruptcy and Creditors’ Rights Group, concentrates her practice on commercial litigation and bankruptcy and creditors’ rights. Her clients include financial institutions, private lenders, creditors, and accounting firms.  She has successfully represented secured creditors and unsecured creditors in Chapter 11 bankruptcy cases and state court insolvency proceedings.  She frequently handles commercial foreclosure actions, actions to enforce promissory notes and guarantees, lien priority disputes, fraudulent conveyance actions, and creditor enforcement matters...

917-369-8847
William Brewer Commercial Real Estate Attorney Norris McLaughlin
Member

William L. Brewer focuses his practice in the areas of commercial real estate financing, leasing, acquisitions and sales, loan restructuring and workouts, loan sales and purchases, and distressed debt transactions.

Bill represents lenders and borrowers in connection with commercial and mezzanine loans secured by real property and other assets, commercial construction financing, and workouts and foreclosures. He also advises lenders on restructuring defaulted loans and negotiating forbearance agreements, deed in lieu agreements, and modifications and amendments to loan documentation...

917-369-8843
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