Thoughts for Companies Facing Distress as a Result of COVID-19

On March 22, 2020, Governor Polis issued a statewide 50% reduction in force order. The next day, March 23, the City and County of Denver issued a shelter-in-place order exempting only essential businesses. Mandatory workforce reductions and closures are impacting the vast majority of businesses in Denver and in greater Colorado. Those effects are compounded by the general economic downturn related to the COVID-19 pandemic.

We will cover specific elements of the applicable orders in other articles. Keep an eye on this site for more information. In the meantime, we offer the following considerations for every business facing liquidity and related issues in this moment.

Confer with trusted legal counsel before making big decisions. Decisions you make in response to this crisis can have substantial legal ramifications that could impact your business’ ability to bounce back when the situation improves. For instance, firing all or part of your workforce could trigger federal notice requirements under the WARN Act. Another example: making payments to insiders or creditors could raise fraudulent transfer or fiduciary duty issues. The best way to protect yourself—now and in the future—is to talk to a lawyer before making any significant business decisions. 

Review key contracts. Loan documents and other contracts have provisions that may be implicated by the current crisis—financial covenants, force majeure clauses, etc. Identify the key contracts your business relies on and review them to determine whether they might obligate your business to do anything or entitle your business to some benefit. Be particularly attentive to leases, loan documents, and other critical contracts. Answers will not always be obvious on the face of the documents, so involve a lawyer if at all possible.

Don’t lose sight of governance. Make sure you are complying with notification and other requirements vis a vis partners, members, directors, shareholders, and other key constituents. It may not seem like the most important thing to do in the midst of a meltdown, but providing notice and disclosure now can protect you from potential claims down the road.

The lawyers at FGMC are here to help you weather this storm. Please reach out to us if we can help with specific questions, or even just to have a conversation about best practices. 

Jason Spitalnick

Jason Spitalnick


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