Redefining Extraordinary Circumstances in the Wake of COVID-19: Finding Consistency in Difficult Times
May 6, 2020
Authored by: Andrew Schoulder, Jason DeJonker and Chelsey Rosenbloom
Humanity has largely embraced the “we are in this together” mentality from a health crisis perspective. Yet, even as world leaders scramble to contain the COVID-19 pandemic, we have yet to fully grasp the follow-on impact from the pandemic and particularly, how it will affect world economies. For this “second phase” of the world’s response to the pandemic, the ultimate question is whether business and financial counter-parties will equally share the risk of loss. Bankruptcy judges have jurisdiction to fashion remedies for parties in their courtroom, but Congress and COVID-19 have left them no choice but to rule on issues immediately in front of them without the ability to limit the impact of their decisions on other market players. With a goal of tempering the COVID-19 related damage, recent difficult decisions in U.S. Bankruptcy Courts have invoked unprecedented results, but employing U.S. Bankruptcy Courts as our method of policing the economic impact of the pandemic may disproportionately impact risk-shifting.
Our economy relies on numerous players, all of whom are impacted (and impact one another): (a) unemployed people can neither pay their rent nor inject discretionary spending to restart retail and other industries; (b) retail tenants that do not generate income cannot pay their rent, resulting in commercial landlords/property owners potentially defaulting on their mortgages; (c) lenders with overdrawn revolvers cannot (or will not) further extend credit to defaulting borrowers; (d) companies that are cash-strapped cannot pay employees, landlords or lenders. Stated simply, there will be an echoing breakage if a disproportionate amount of the