COVID-19 is having a negative impact on almost the entire business environment. Early financial planning is critical for management to deal with the economic downturn. For some, bankruptcy may be an option that businesses should consider.
Take these steps now!
Now is a critical time for businesses to engage internal and external advisors to assist with the following:
A review of existing contracts and loan agreements by legal advisors is particularly important, with a particular focus on financial covenant compliance and cash-flow-related default provisions. The goal for management is to implement strategies that maintain value moving forward. Current and future lenders will expect management to have engaged competent legal and financial advisors to help with restructuring alternatives that may include forbearance agreements, waivers of certain financial and non-financial covenants, waivers of fees, amendments, increased indebtedness and/or adjustments to current principal and interest amortization schedules.
Should Bankruptcy be considered?
Management also should be prepared for lenders or advisors to suggest that the business consider bankruptcy as an alternative restructuring tool. The Bankruptcy Code was made to encourage financial restructuring to permit payments to creditors while preserving jobs and shareholders interest. The following are a few high-level bankruptcy concepts:
Phelps’ team of professionals are available to support management in this time of crisis by offering legal and financial counseling, whether it be for an out-of-court workout or a chapter 11 bankruptcy reorganization. Phelps also has set up a COVID-19 Client Resource Portal with information to assist individuals and businesses that are dealing with economic uncertainty and legal concerns during this time.