Assessing the state of and options for your business during COVID-19 fallout

A Chapter 11 bankruptcy attorney offers these tips for businesses facing economic threats during COVID-19.

Joe Pack, Pack Law partner in Miami (Photo: Courtesy Photo)

In these days of “unprecedented times,” during which American businesses have been hit hard by COVID-19, business owners are struggling to determine how to be proactive and arm themselves for the economic threats that are still to come.

Following is guidance based on my experience as a Chapter 11 bankruptcy attorney representing businesses and creditors in some of the most contested cases ever filed:

First, get your financial snapshot in focus. This means: compiling a balance sheet, listing all of your assets, all of your payables (or liabilities), including what may become a liability down the road (i.e., contingent liabilities), and determining what equity (if any) is left for owners.  Following from that, is there an operational plan that can be implemented to lower costs while salvaging the competitive advantage of the company/?

Second, take inventory of your contracts and agreements. Which contracts are critical for the business to continue operations? What constitutes an “event of default” under those agreements? While businesses are generally seeing payment waivers across the board, the vast majority of contracts and virtually all loans include other obligations (or covenants) that if not satisfied or specifically waived still render the agreement in default.

This means, borrowers who are negotiating their loans should be negotiating more than just payment forgiveness. Is there a “force majeure” provision that applies to your business’s obligations under the applicable agreement?

Force majeure clauses are included in many commercial contracts and set forth the very limited circumstances under which a party may terminate or fail to perform without liability due to the occurrence of an unforeseen event. However, whether that “out” applies to your business requires its own legal analysis. The law is evolving every day.

Third, create a budget for professional advisors needed to help you through legal and financial analyses.

Fourth, assess the realistic and honest outlook of your business. Is the problem really the pandemic? Or is the pandemic the proverbial nail in the coffin for a business that was struggling to turn profits long before its arrival?

Finally, understand generally informal and formal business restructuring options:

Most importantly, take a deep breath. Organize your files. And it all becomes surprisingly manageable.

Joseph Pack, a New York and Florida attorney and Florida Certified Public Accountant, is the founder of Pack Law, a Miami based law firm specializing in business restructuring and bankruptcy including Chapter 11, Subchapter V and Chapter 7. He may be reached at joe@packlaw.com.