COVID-19 Bankruptcy and Distressed Assets—Issues for Businesses

Clients in every industry will face economic uncertainties due to the COVID-19 pandemic. Below are some of the key considerations for businesses facing hard financial decisions in the coming months.

Manatt’s bankruptcy, restructuring and distressed assets team works with you to develop solutions that preserve your value, address your problems and leave you stronger than before. We have decades of experience with complex financial restructuring, problem-solving deals and financial crisis management across all industries and business sectors. Whether your financial issues and needs arise from or relate to finance, media, entertainment, healthcare, manufacturing or real estate, our interdisciplinary team is prepared to respond with expertise.

Key Issues to Consider

Getting Paid—and Keeping It
The Issue: Getting paid on accounts receivable, loans or rent is always a challenge in tough economic times. Navigating the current maze of eviction and foreclosure moratoriums further complicates this already difficult task. However, with the threat of a future bankruptcy, assignment for the benefit of creditors or other insolvency situations, there is the additional consideration of a future “clawback” of payments already received. Care must be taken to ensure that payments received are payments retained. How Manatt Can Help: Our interdisciplinary team of insolvency, restructuring, litigation, real estate, constitutional and eminent domain professionals can collaborate with clients to develop and execute innovative, comprehensive and practical solutions. We can also help make sense of the various orders and moratoriums on eviction and foreclosure to maximize collections, and help guide our clients through the maze of preference, fraudulent transfer and other laws that may affect payments received.
Distressed Assets: Restructuring, Workouts, Enforcement, and Debt and Equity Acquisitions and Dispositions
The Issue: The economic consequences of COVID-19 could be devastating for property owners, lenders, investors and developers who do not quickly and forcefully confront issues affecting their investments. Early and decisive action is often the difference between successful asset value preservation and failure. How Manatt Can Help: Manatt has significant experience in creating solutions that preserve value by applying our thorough understanding of applicable finance, restructuring, insolvency and commercial law, including California’s One-Action Rule and anti-deficiency laws.
Buying Opportunities Outside Bankruptcy
The Issue: Acquisitions outside of bankruptcy can also pose a challenge of a different kind. Given current economic uncertainties, transactions will need to be looked at with an eye toward a potential future bankruptcy, whether voluntary or involuntary. That eventuality may cause the sale to be viewed retroactively under a new set of rules, possibly upsetting the deal. How Manatt Can Help: Manatt’s deep expertise in asset acquisitions allows us to counsel our clients on the potential pitfalls of a possible bankruptcy and to structure deals designed to withstand the possible scrutiny inherent in a subsequent bankruptcy proceeding. Extra care must be exercised to keep the deal intact when dealing with a counterparty that could later wind up in bankruptcy.
Buying Opportunities Inside Bankruptcy
The Issue: Opportunities to make strategic asset acquisitions during the economic slowdown will arise. These opportunities may present themselves in the bankruptcy context, raising complex issues that inevitably arise in a bankruptcy sale, including issues of good faith purchaser, potential successor liability, the absence of otherwise standard representations and warranties, unfamiliar competitive bidding rules, and others. How Manatt Can Help: Manatt has significant experience in bankruptcy sales and can help clients navigate these unfamiliar and often complex requirements to achieve a successful and unchallengeable acquisition.
Loan Restructuring
The Issue: Loan defaults are bound to increase in the future, and creditors will likely favor a restructuring strategy rather than face a plethora of write-offs. On the other hand, businesses that have financing issues will need help renegotiating their financial arrangements in order to keep payments manageable and cash flowing under lines of credit. How Manatt Can Help: We have extensive experience with all types of financing in uncertain economic times, whether secured or unsecured, real estate or commercial, fixed-term loans or lines of credit. Our deep bench of financial regulatory attorneys enables us to keep up on the latest guidance and trends.
Entertainment and Intellectual Property Concerns
The Issue: The treatment of IP licenses in bankruptcy differs from other types of contracts, as does the treatment of secured transactions based on IP. Subtle issues of copyright law may radically alter the course of bankruptcy proceedings, often years after the transactions were closed. The prospect of future insolvencies of entertainment companies will require an interdisciplinary approach to find innovative solutions. How Manatt Can Help: Manatt’s insolvency team works closely with our entertainment and IP attorneys to provide a deep understanding of both the legal issues involved and the unique practices of the entertainment industry. Bankruptcy courts, which are accustomed to more standard financial transactions, often need to be educated in this unfamiliar business.

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