Winthrop Golubow Hollander, LLP
ProVisors, Irvine Spectrum
COVID-19 is having a negative impact on almost the entire business environment. Nationwide, businesses are closed, others are suffering disruptions including reduced hours of operation from government restrictions, while still others are confronted with supplier or customer delays. Regardless of the business sector, we’re all wondering when shelter-in-place orders will be lifted so that we can all get back to work, as if COVID-19 never happened.
Many people have placed a great deal of hope and optimism on the more than $2 trillion-dollar federal stimulus package, supplemented by state, local, and private efforts, that have been announced. While the response to COVID-19 begins to take shape, the looming question is “will this be enough?” The old adage of plan for the worst and hope for the best is how every business must proceed in this volatile and unprecedented environment. Businesses must immediately enter crisis management mode as the certainty of more economic slowdown is 100%.
Now is a critical time for businesses to engage experienced financial restructuring advisors to assist with the following: update financial projections to evaluate cash flow in worst, likely and best-case scenarios, with an emphasis on hoarding cash; create alternative business plans based upon the updated financial projections; assess cash availability from current streams of revenue, existing loans, and lines of credit; assess unencumbered assets that could be used as collateral to borrow additional funds; review insurance contracts to identify claims for business interruption coverage; analyze current contracts with a focus on force majeure clauses, notification requirements and default provisions; summarize employee wage/benefit requirements and available assistance programs; and implement cost reduction plans to achieve or maintain positive cash flow.
A review of existing contracts and loan agreements by insolvency counsel experienced in bankruptcy and bankruptcy alternatives is critical, with a particular focus on financial covenant compliance and cash-flow-related default provisions. Lenders and other counterparties to agreements will expect management to have engaged competent legal and financial advisors to help navigate the complex landscape of non-bankruptcy restructuring alternatives that include forbearance agreements, waivers of certain financial and nonfinancial covenants, and other amendments to existing agreements. The goal for management is to implement strategies that maintain value moving forward, and to do so without the need to seek formal bankruptcy court intervention.
While most businesses will suffer, and many will fail, your business can survive. The key to survival is to plan, not panic!