Expect Flurry of Bankruptcy Filings With Coronavirus Slowdown

Bankruptcy attorneys expected to get calls as the coronavirus pandemic swiftly slowed the economy — and they were right.

“It’s been incredible. It’s gone from the TV to my front office door with a speed that I just never experienced,” said Luis Salazar, partner at Salazar Law in Coral Gables.

Small businesses and big companies are faced with dwindling foot traffic, shorter hours and occupancy limits enforced by cities plus a slowdown in Chinese imports. They are weighing their options. On the real estate front, commercial landlords are looking closely at their tenants.

“Landlords have a lot of protections under the Bankruptcy Code,” said Jeffrey Snyder, a Bilzin Sumberg partner in Miami.

Six potential clients have reached out to Salazar since the coronavirus outbreak, including hospitality businesses and wholesalers relying on Chinese imports. Snyder and Glenn Moses, a shareholder at Genovese Joblove & Battista in Miami, also said their firms have been getting inquiries but declined to disclose how many and the types of companies seeking advice.

“We are living in uncertain financial times, and that’s leading to economic costs,” Moses said. “We are counseling our clients on a lot of options, including restructuring. We are seeing an uptick in discussions, and we are starting to add strategic plans with our clients, and we are certainly gearing up and prepared.”

Bankruptcy is a last resort after all other options have been explored, including tapping lines of credit. Still, that might not be easy or cheap and depends on the amount and quality of collateral.

“There are some lenders who are much more aggressive of course who might finance accounts receivable or other cash flow for really in some cases very high rates so that each will have liquidity,” Salazar said. “It’s possible to get additional credit under the circumstances. how far along and how precarious of a financial situation of the borrower.”

It’s difficult to pinpoint which businesses are more likely to seek bankruptcy protection. A large well-heeled company could weather the storm, but if it’s already facing headwinds, it might be more likely to file. And a small business isn’t necessarily more vulnerable. The corner mom-and-pop convenience stores and restaurants might still be drawing shoppers.

A good rule of thumb is that businesses that sell necessities like groceries are more likely to retain good patronage, Salazar said. But those already struggling, such as retailers feeling the effects of e-commerce growth, could be seeking protection.

Landlord Protections

Landlords should be exploring their options, said Aleida Martinez Molina, partner at Weiss Serota Helfman Cole & Bierman.

“The bankruptcy code is complicated, provisions relating to commercial landlord situations even more so,” she said.

Under Chapter 11 bankruptcy reorganizations, tenants have 180 days from the filing date plus a 90-day extension to decide if they want to keep or reject a lease, said Moses. Under Chapter 7 liquidations, that time period is 60 days, after which a lease is rejected.

Tenants won’t be entirely off the hook from paying rent.

“Ultimately after the 60th day of the case, the court is going to compel a tenant to pay rent and comply with other terms of the lease or the landlord is going to be in a position to get that space back,” Snyder said.

Court opinions differ on the rent and other lease obligations in the 60-day period right after a tenant filing, he added.

Florida counted 155 cases of COVID-19 by Monday afternoon.

Stock markets nosedived Monday after the Federal Reserve brought its key interest rate to nearly zero in an emergency move Sunday.

A Moody’s Analytics economist projected that if the pandemic and related business closures stretch into summer and U.S. cases shoot above 100,000, a recession could be in store.

Attorneys say landlords would be better off renegotiating leases instead of ending them since they would still generate rental income, albeit lower.

“It’s hard to imagine you are going to have a lot of retailers and restaurants, who are going to be looking to occupy the space during this constrained time period,” Snyder said.