Excerpted from the August 6, 2020 issue of Rhode Island Lawyers Weekly
As the Paycheck Protection Program winds down, and moratoriums on evictions expire, bankruptcy and restructuring attorneys in Rhode Island are seeing more COVID-19-related business now, and expect to see more in the coming months.
Pierce Atwood partner Stephen F. Del Sesto, whose practice includes corporate restructuring, state and federal insolvency proceedings, and creditors’ and debtors’ rights, mentioned that he has already seen a “slight uptick from the norm” in receiverships, and predicts increasing activity in that area. Stephen noted, “There are always receiverships, regardless of the economy, but in my opinion the federal money coming in gave everyone the ability to calm the waters for a while. Absent another wave of funds, I think we’ll see more as we go through the holidays, and certainly by January.”
Stephen also described a “cycle” of receiverships, noting that businesses tend to put all of their efforts into trying to make it through the end of the year. He stated, “A lot of people rely on the holidays to move them from red to black, but I don’t know if we’ll see that this year because they just aren’t seeing the traffic. This year we may see more filings during the typical fall ‘lull period.’”
In discussing the Paycheck Protection Program, Stephen believes that it served “some” of its purpose, adding, “The horizon on how much money was needed to keep people afloat was underestimated. This wasn’t a two- or three- or four-month problem. But it did allow some businesses to pay staff so that they were in place to move into Phase II.”
Many are predicting that the “next wave” of bankruptcy filings will include commercial real estate owners that may not survive if many of their tenants can’t pay their rent and new tenants not there to fill the pipeline.
Recognizing that every owner is “in a different position” as far as how long a tenant can “forgo paying rent,” Stephen stated, “In terms of moving a business into liquidation, compounding the problem is that the pool of buyers will be extremely small. You will have lots of volume, but not a lot of buyers. Somebody has to buy the restaurant equipment. How do you sell this stuff, who do you sell it to, and how do creditors get paid if you can’t sell it?”
Stephen added, “Big retailers are different, since they have an online presence and are spread across the country. But a small- or medium-size business in Rhode Island will have to ask if they can generate the revenue to support a reasonable plan.” And some PPP recipients who are unable to recover may have used their loans in ways that are not forgivable, thus adding to their existing debt. Stephen concluded, however, that “he’s not sure at this point how the federal government will track that in terms of priority.”
The complete article by Barry Bridges can be found in the August 6, 2020 issue of Rhode Island Lawyers Weekly.