COVID-19 continues to impact businesses nationwide in 2021 and likely beyond. In response, on December 27, 2020, Congress passed the massive Consolidated Appropriations Act of 2021 (5000+ pages) into law. The Act contains targeted modifications to the United States Bankruptcy Code to encourage rent deferral negotiations between commercial landlords and their tenants while minimizing future bankruptcy litigation risk.
The key changes which will last until December 27, 2022, are:
- Expanding the time under Section 365(d)(4) of the Bankruptcy Code for a Chapter 11 debtor to commit to assume or reject commercial leases from the current 120-day deadline (with a possible 90-day extension) for an additional 90-days. This provision will give all affected parties (landlords, tenants, secured lenders, official committees) more time to make critical right-sizing decisions.
- Modifying Section 365(d)(3) of the Bankruptcy Code to allow small business debtors under the new Small Business Reorganization Act (subchapter V of the Bankruptcy Code) to defer rent due within the first 120-days of the bankruptcy case and repay it through their bankruptcy plan. This provision adds an additional 60-days to the current provision, which permits a 60-day rent deferral “for cause.”
- Creating a temporary exemption from the current “clawback” provision of Section 547 of the Bankruptcy Code allows recovery of payments made by a debtor to a creditor, outside the ordinary course of business, within the 90 days before the bankruptcy filing. Under the recent Bankruptcy Code amendment, rent deferrals and other payments made outside the ordinary course to landlords and creditors would not be subject to recapture, encouraging deferred payment arrangements without fear of future liability exposure.
If you have questions about the Act or strategies to address business distress caused by COVID-19, please contact Joyce A. Kuhns
ABOUT JOYCE KUHNS
With extensive experience at the national and regional levels, Joyce Kuhns brings her in-depth knowledge in delivering creative solutions to help transform financial challenges to successful outcomes. Whether representing businesses as debtors or creditors, creditors’ committees or equity committees, or as an advisor to trustees or regulators, Joyce’s understanding of the complexities of financial and business structures and her experience with out-of-court resolutions as well as litigation at the trial through appellate levels enables her to provide critical strategic advice from the boardroom to the courtroom to a broad spectrum of clients at every stage of the business cycle including directors and officers of companies in crisis. A pragmatic problem-solver, Joyce uses her cross-disciplinary legal skills to meet the daily business needs of her clients and to help reshape their future.
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