COVID-19 Bankruptcy

COVID-19 has posed immediate and material disruption and threats to many businesses, particularly those that are subject to recent governmental shut downs, quarantines, and similar measures. While these extraordinary measures are understandable and laudable from a public health perspective, the fallout to business owners and the economy will be severe. In the immediate time period, there will be an unfortunate surge in defaults. 

Olshan is assisting clients on all sides of defaults and potential defaults, arising from loan agreements, real estate leases, asset purchase agreements, franchise agreements and other agreements. We stand ready to assist clients throughout this current period of uncertainty.

Clients should carefully review their documents and develop clear plans if there is business disruption or if events of defaults are occurring or are foreseeable to occur. It may be advisable to communicate exigent circumstances with lenders and counterparties. Lenders and other counterparties should also review of their loan documents and understand all events of default and available remedies. Compliance with, and restructuring of, agreements and financial covenants may become immediate issues.

In many cases, it may be in the best interests of both parties to come to an agreement that alleviates the immediate pressure as the pandemic runs its course. A forbearance agreement is one possible solution. A forbearance agreement is an agreement whereby one party agrees to forbear from pursuing legal remedies available to it during events of default, for an agreed upon  period of time (the “forbearance period”), to allow for the other party to have the time needed to stabilize things and determine the best path forward.

Whether a lender or other contract party will be willing to enter into such an agreement, and under what terms, will depend on a number of factors, and is typically highly negotiated. However, this may be a very effective temporary measure to provide the breathing space needed during this critical time. Government programs, expanded SBA loans and even bailouts could occur in the weeks ahead.

Client Alerts

CMBS Loan Restructurings: COVID 19 Causing Immediate Need for Loan Workouts

Navigating Defaults, Foreclosures, Evictions and Workouts in the Wake of the Coronavirus Pandemic