Getting Paid and Holding off Creditors Becomes a Big Challenge
The headlines are frightening, but for many of you, there is no need to turn on the television or read the papers. You are already out of work, your businesses are shuttered, or your tenants have stopped paying. With orders to shelter in place, avoid crowds, close bars and restaurants, cancel sporting, religious and other large events, the effects are already here. Businesses large and small, and landlords, both commercial and residential, will be feeling tremendous pressure very soon if they are not already. Customers and clients will stop paying their bills or stop seeking your goods and services. Tenants will have little or no ability to pay their rents. But your creditors will still be insisting that their rents and other bills be paid. How are businesses and landlords going to cope?
Patience is a virtue in these trying times. When it comes to your own customers, you will certainly want to do whatever you can to offer relief from those who cannot pay their bills and provide incentives for customers to continue purchasing goods and services. Customer loyalty will mean a lot when the economic situation improves.
Landlords may be less concerned about “customer loyalty,” and insist on getting paid now. But keeping tenants happy and in their apartments or business locations will make it easier for you to recover later when the money begins again to flow. The last thing you need is a large percentage of vacancies that need to be filled.
While you may be more than willing to offer your customers and tenants relief, your bank or trade creditors might not be as understanding. What about them? They also have their own bills to pay and shareholders who depend on the success of those operations. It is a vicious circle.
I can help you navigate these challenges. I will guide you while you try to balance a customer’s obligations and the desire to keep them loyal while still getting paid. Just as important, I will work to buffer you from creditors who must be kept at bay for you to stay in business.
While your own gentle touch might be enough to hold your creditors at bay, if it is not, you may need a stronger approach. You may be under a contract that includes a force majeure clause that relieves a party from its obligations made impossible due to unforeseen circumstances. Those are typically meant to protect against so-called “acts of god,” such as fires or floods, and other events that are considered beyond the control of the contracting parties. Would such a contract provision apply to a pandemic? Or is this just an unforeseen business fluctuation that would not be covered?
And what if you don’t have a contract or the contract does not include such a clause? Is there an implied force majeure clause that may be invoked for protections? You may be able to rely on common law frustration of purpose doctrines, but each situation will need to be carefully reviewed.
Even if your case is strong, you still need to persuade your creditors. Most of you are simply going to be looking for temporary relief to allow you to get through the current crisis and then time to get back on your feet. Some may require more drastic measures, such as complete relief from all or a substantial portion of what may be owed. You don’t necessarily want to file bankruptcy just to get there if that can be avoided. The most important thing is to have a strong voice who can express your concerns and present practical and viable solutions to all concerned.