During this unprecedented time of uncertainty, landlords, financial institutions, vendors, suppliers, and other creditors will undoubtedly be affected. Due to the closure of most businesses which are considered non-essential, it is inevitable that ordinary business obligations such as rent, payments for equipment or inventory financing, employees, and creditors will not be made. It is just a matter of time before business owners default, and creditors will be faced with a problem that unless immediately addressed will only become larger. Some of the obvious signs that a business is unable to meet its obligations are the following:

1. Non-payment of rent;
2. Non-payment to the equipment or inventory financing company;
3. Reduced operating hours; and
4. Failure to pay vendors and suppliers.

In Los Angeles and other major metropolitan areas throughout the United States, moratoriums have been enacted that prevent the eviction of businesses due to non-payment of rent.  The existence of a moratorium, however, should not delay creditors from developing a strategy to address the situation once the moratorium is lifted, and to contact business owners to initiate negotiations.  Business owners are not likely to contact their landlord, bank, or suppliers directly. Therefore, it is important that communications with the business owner begin as soon as possible.  Having an agreement in place,  preferably before the eviction moratorium expires, is extremely important.  Otherwise, waiting to start discussions with the business owner until after the moratorium expires, will only cause a delay in reaching an agreement. 

This is a good time to review your existing insurance policies. Depending on the policy provisions, it may be possible to submit claims and minimize losses. In addition, and if discussions/negotiations occur with business owners, their insurance policies may also provide a source of recovery. Further, it may be possible to develop innovative remedies involving insurance policies of a business owner for the benefit of their creditors.

Ervin Cohen & Jessup LLP (ECJ) has a bankruptcy, receivership and creditors rights group that possesses substantial experience in all aspects of insolvency. Additionally, several ECJ attorneys specialize in insurance coverage issues, and can advise clients of their rights and remedies that may the foundation for the recovery of funds to minimize losses during these uncertain times. The partners in the insolvency group regularly serve as receivers in state and federal court, and as counsel for receivers and bankruptcy trustees. One of the specialties of ECJ is its ability to create and implement effective strategies and solutions to serve the needs of their clients. As more time passes while businesses remain closed, the impact on creditors only increases. Therefore, addressing the situation at the earliest time is vital in order to minimize the financial impact on creditors.

*Byron Z. Moldo is a Partner in the Bankruptcy, Receivership and Creditors’ Rights Department.