By: Adrian Delancy + Alan Rosenberg
To all the business owners in South Florida, there are four words you need to hear: this too shall pass. The United States economy made it through 9/11; survived the Great Recession; and in the coming months, the economy will also emerge from the COVID-19 pandemic, stronger than ever. Of course, at the present time, these words are easier to type than to believe. We are acutely aware of the economic uncertainty and near panic spreading across America. Business owners around the country – if they have not yet been ordered closed – are struggling to stay afloat and meet their financial obligations. Small businesses are particularly vulnerable. Many small businesses are struggling to pay their employees, vendors, and rent. Given the speed at which closings are occurring and the lack of a clear solution on the horizon, the reality of the moment is in a word – overwhelming. But it is during dire circumstances such as these that business owners must resist the temptation to make decisions in haste. While there is no guidebook to operating a business during a global pandemic, there are certain measures that businesses can take to help protect themselves until the storm passes.
First, DO NOT PANIC. There are state and federal programs available, and hopefully, more to come, that can aid small business owners suffering financial injury as a result of COVID-19. For example, Florida Governor Ron DeSantis has recently activated the Florida Small Business Emergency Bridge Loan program. Through this program, certain small business owners may be able to obtain short-term, partially-interest free loans to address funding needs while they secure longer-term recovery resources. Business owners may be able to renegotiate lease or loan payments with landlords and lenders who may voluntarily extend payments or restructure debt in order to continue receiving payments and avoid unwanted litigation. This could be as easy as picking up the telephone and making a simple request. Whatever the outcome, ignoring the problem, or waiting too long to address it, is likely to make things worse.
Second, REVIEW YOUR CONTRACTS CAREFULLY. Some contracts contain force majeure clauses which may excuse nonperformance of a contract under certain extreme and unforeseeable circumstances. Depending on the language of the clause and the nature of the contract, business owners may have defenses to contractual defaults given that the world is experiencing extreme socioeconomic conditions beyond anyone’s expectations or foreseeability. Even if the contract at issue does not contain a force majeure provision, business owners may still have similar equitable arguments in the law that could provide relief.
Third, DO NOT ENGAGE IN UNUSUAL TRANSACTIONS. Do not transfer your business’ assets to your friends or family because you are concerned that they may be attacked by creditors. Do not use your business’ operating account to go on a shopping spree for toilet paper because you believe the end is near. Do not do anything you would not normally do when it comes to your finances. Keep the corporate structure. Your business has an obligation to its creditors. If your business decides to utilize an insolvency proceeding, any such transfers may put you, your business and the recipients of these transfers at risk of being sued for the return of the money or assets.
Last, DO NOT THINK THE INTERNET CAN REPLACE A LAWYER. While it is hopeful that businesses will cooperate with each other during these tough financial times, there may come a time when an insolvency proceeding, i.e., a federal bankruptcy proceeding or an assignment for the benefit of creditors (a similar state law proceeding), may be appropriate and necessary. While the internet is a valuable resource, the decision of how, whether and when to initiate an insolvency proceeding is one that should be discussed with a qualified and experienced insolvency attorney. State and federal insolvency proceedings require fact-specific knowledge and experience, which the internet cannot offer. Nevertheless, business owners in South Florida should take comfort in knowing that our local bankruptcy bar has some of the finest insolvency professionals in the country.
While it is impossible to predict when the COVID-19 pandemic will fizzle away, business owners should take comfort in knowing that they have options during their time of need. So before making any rash decisions, business owners should take a deep breath and repeat to themselves: this too shall pass.