COVID-19 has left few industries unscathed. For those facing substantial financial damages, insurance policies may offer hope, and this is just as true for those losses being suffered in the entertainment industry as government orders have placed nearly all TV and film production in stasis because of the pandemic.

On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act, whose provisions we summarized here. PPP applicants are required to make a number of certifications in connection with their applications, for example concerning their eligibility and the purposes for which they will use the loans. Attention to these certifications is extremely important, given the severe penalties that are possible for submitting false or misleading certifications to the government. One such certification that has drawn particular scrutiny is the certification that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

On Thursday, May 7, California rolled out a modified stay-home order and issued guidance to move into “Stage 2” of reopening certain sectors of the economy. This new statewide order, and the county-level reactions to it, create another layer in the patchwork of compliance requirements, but provide a pathway for certain industries to open doors sooner than others.

The pandemic crisis gripping the world has dramatically expanded demand for medical, food, household and other supplies. Governments, international organizations, NGOs and private companies have unleashed a wave of spending. Sadly, corruption, fraud and money laundering thrive in such environments.

On May 5, the Department of Justice (DOJ) announced its first fraud and abuse indictments related to CARES Act lending. DOJ charged two men in Rhode Island with fraudulently seeking more than $500,000 in forgivable loans from the Small Business Administration (SBA) under the Paycheck Protection Program (PPP). The men allegedly sought funds for businesses that were not in operation prior to the COVID-19 pandemic in order to pay the salaries of employees that did not exist, while providing false documentation to support the application. DOJ charged the men with bank fraud, conspiracy to commit bank fraud, conspiracy to make false statements to influence the SBA, and aggravated identity theft. This is expected to be the first of many enforcement actions DOJ will launch against COVID-19 fraudsters.

Investment advisers

• Relief from the Form ID notarization process for certain filers. The SEC has adopted a temporary final rule to provide relief from the Form ID notarization process for certain filers where circumstances related to COVID-19 render it impracticable or impossible to obtain a notarization in a timely fashion. From March 26, 2020 through July 1, 2020, temporary paragraph (c) to Rule 10 of Regulation S-T under the Securities Act of 1933 will allow filers to gain access to the EDGAR system on a temporary basis without initially providing the required notarization to the manually signed document, provided that the filer indicates on the face of the signed document that it could not obtain the required notarization due to circumstances relating to COVID-19. Filers seeking access to EDGAR in reliance on the temporary final rule may be asked to provide documents, on a supplemental basis, to support their application and assist the staff in validating the request. Once the codes are issued, the filer may commence filing.

On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act, whose provisions we summarized here. PPP applicants are required to make a number of certifications in connection with their applications, for example concerning their eligibility and the purposes for which they will use the loans. Attention to these certifications is extremely important, given the severe penalties that are possible for submitting false or misleading certifications to the government. One such certification that has drawn particular scrutiny is the certification that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Many applicants have noted that this certification is vague and have sought guidance on it.

Beginning on Monday May 4, 2020, at 12:01 a.m., Florida will begin reopening business in the Phase 1 of the recovery plan laid out by Gov. DeSantis. Businesses seeking to reopen will be subject to social distancing guidelines and CDC and OSHA requirements. Gov. DeSantis entered Executive Order 20-112 outlining the requirements for businesses looking to reopen. While this is a statewide order, Miami-Dade, Broward and Palm Beach counties will follow stricter protocols in coordination with their mayors and are excluded from this Executive Order. The remaining provisions of the Safer At Home executive order remains in place.

This is the fourth in a series of alerts on insolvency topics affecting real estate. In this alert, we evaluate whether the existence of personal guaranties are likely to deter property owner bankruptcies—a question raised during Pillsbury’s recent “Real Assets Roundup – Real Estate” webinar.

In the wake of COVID-19, default rates for commercial real estate loans, including those supported by personal guaranties, will likely accelerate. Inevitably, borrowers will consider seeking bankruptcy protection to implement a restructuring of debt or a sale of real property collateral, and lenders should not assume that personal guaranties will prevent borrower bankruptcies. Given the current economic climate, lenders should instead assess the likelihood of their borrowers filing for bankruptcy and consider whether they are better off supporting a controlled bankruptcy process to accelerate favorable collateral disposition, as opposed to litigating on both the bankruptcy and guaranty fronts.

On April 27, 2020, Governor Greg Abbott released Texas’s long-term plan to open the state for business, while still containing the spread of COVID-19. The plan consists of two key components: Executive Order GA-18 (Order), which designates the businesses currently permitted to reopen, and the Governor’s Report to Open Texas (Report), which outlines Texas’s increased testing efforts, contact tracing program, and other safety measures, and provides checklists for individuals and all employers, as well as retailers, restaurants and movie theaters.

As some countries and U.S. states start to lift COVID-19 shutdown restrictions, businesses with staff now able to return to factories and offices need to watch out for unwittingly exposing themselves to fines for breaches of data laws while trying to comply with government guidelines on social distancing and other pandemic-related regulations and guidelines.

As reported in our March 30 alert, the United States Coronavirus Aid, Relief, and Economic Security Act, or CARES Act (H.R. 748) became effective on March 27, 2020. The CARES Act is intended to provide financial assistance to companies hit by the COVID-19 pandemic.

On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act, whose provisions we summarized here. In relevant part, this Act increases by $310 billion the funds appropriated for the PPP established on March 27, 2020, by the CARES Act, whose provisions we summarized here. The SBA has announced that new loans under this second tranche of PPP appropriations will commence April 27, 2020. As the PPP has evolved since its inception on March 27, so too have SBA and Treasury’s articulation of its requirements. One of the agencies’ primary mechanisms for conveying these requirements to borrowers has been through a regularly updated list of Frequently Asked Questions, many of which the SBA then formalizes through interim final rules that it publishes in the Federal Register.

On April 24, 2020, President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act. This is the fourth piece of legislation approved by the President and Congress since March 1 to address the COVID-19 pandemic and associated economic fallout. Most notably, the Act provides critical new funding for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), which exhausted its original CARES Act appropriation within days of program implementation.

With many struggling to make housing payments due to COVID-19, dues owed to multifamily condominium associations are likely to go unpaid—especially if homeowners feel deprived of the use of common areas, such as pools, gyms and playgrounds. Associations with significant reserves may be able to weather this storm, but for associations that were already struggling, the future may look less promising. Advance consideration of options and planning may help avoid a worst-case scenario and maximize value for associations and their unit owners.

On April 9, 2020, the Federal Reserve announced additional programs under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which provides up to $2.3 trillion in loans and other investments to support the U.S. economy. A key component of the relief package is an expansion in the size of the Primary Market Corporate Credit Facility (PMCCF) and the Secondary Market Corporate Credit Facility (SMCCF), significantly upsizing the funds available under both programs from those initially announced on March 23, 2020. The Federal Reserve also published term sheets for each of the programs.

Enacted in 2005, the Public Readiness and Emergency Preparedness (PREP) Act authorizes the Secretary of Health and Human Services (HHS) to limit legal liability for those who administer “countermeasures” during a declared public health emergency. The purpose of the Act is to encourage the quick and efficient development and deployment of countermeasures—like equipment, diagnostics, treatments, and vaccines—during a public health crisis, like the current COVID-19 pandemic.

Washington, DC Mayor Muriel Bowser has implemented additional restrictions in the District to combat the spread of COVID-19. Mayor’s Order 2020-058, issued April 8, 2020, adds further social distancing requirements for retail food sellers and farmer’s and fish markets. Mayor’s Order 2020-063, issued April 15, 2020, extends the previous public emergency and public health emergency orders through May 15, 2020, implements additional protocols for group facilities, and adds face covering requirements.

On April 17, 2020, the Cybersecurity and Infrastructure Security Agency (CISA) rolled out its third installment of the Essential Critical Infrastructure Workers guidance ( Guidance). This Guidance amends prior versions released on March 19 and March 28. Our redline identifying the differences can be found here.

As previously noted, the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136, (CARES Act), which was signed into law on March 27, 2020, includes approximately $14 billion in stimulus funds for higher education. Approximately $12.6 billion are allocated to IHEs according to a formula based on student enrollment (Formula Grants). See CARES Act, § 18004(a)(1). On April 9, 2020, ED made available to IHEs half of the Formula Grants to be used for emergency financial aid to students (more information here).

In October 2014, SAP announced that it would discontinue mainstream maintenance on its Business Suite 7 software at the end of 2025. This deadline forces SAP customers that wish to remain on a supported version of SAP ERP to migrate to S/4 HANA. S/4 HANA is SAP’s new generation of ERP software that consists of SAP’s core product set and an in-memory database solution.

The social distancing measures implemented by the government in response to the COVID-19 pandemic have prompted many businesses to adapt their daily practices and governance at relatively short notice. This briefing considers some practical and logistical considerations that can assist companies and their directors and officers in navigating the management of the business during this rapidly evolving period.

On April 3, 2020, the Centers for Disease Control and Prevention (CDC) recommended that all individuals wear cloth face masks in public, and where social distancing measures are difficult to maintain. The CDC advises that use of cloth face masks will slow the spread of the virus and help prevent asymptomatic and pre-symptomatic individuals with COVID-19 infections from transmitting the virus to others. Across the United States, an increasing list of governors and mayors are making that recommendation into a requirement.

On March 23, the Federal Reserve announced a series of efforts to address ongoing financial uncertainty in the face of COVID-19. One such effort is the establishment of the new Term Asset-Backed Securities Loan Facility (the TALF) authorized by Section 13(3) of the Federal Reserve Act. The facility is designed to support the flow of credit to consumers and businesses through securitization. The TALF will enable the issuance of asset-backed securities (ABS), including securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and other eligible assets.

On April 15, 2020, Maryland Governor Larry Hogan issued Order No. 20-04-15-01 requiring the use of face coverings when on public transportation or inside of retail or foodservice establishments. The order also requires that retail establishments implement certain physical distancing and public health measures to the extent possible. While the order is effective immediately, the face covering requirement goes into effect at 7:00 a.m. on April 18, 2020. As with prior orders, failure to comply constitutes a misdemeanor subject to imprisonment (not exceeding one year), or fines (not exceeding $5,000), or both.

As noted in Construction During COVID-19: Is It Essential?, CISA issued an advisory memorandum and guidance on what services should be considered as a part of the “Essential Critical Infrastructure Workforce.” CISA’s purpose in issuing the guidance was to “help state and local officials as they work to protect their communities, while ensuring continuity of functions critical to public health and safety, as well as economic and national security.” Because many states reference or incorporate the CISA guidance into their own state executive orders and directives, it is important to stay up to date on provisions relating to construction. Moreover, some states incorporate a specific version of the CISA guidance and may continue to rely on older versions of the guidance until adopting the later guidance. (For example, in Indiana, Executive Order 20-08 initially ordered the closure of non-essential businesses and referenced the original CISA guidance. Executive Order 20-18 superseded Order 20-08 and, among other things, referenced the CISA guidance that was updated on March 28. In contrast, Florida’s Executive Order Number 20-91 attaches CISA Guidance 2.0 but specifically incorporates “and any subsequent lists published” by CISA.)

The Small Business Reorganization Act of 2019, which created Subchapter V of chapter 11 of the Bankruptcy Code, became effective on February 19, 2020 (11 U.S.C. §§ 1181-1195 “Subchapter V”). Subchapter V was intended to mitigate perceived challenges faced by small business debtors, with no more than $2,725,625 in debt, in traditional chapter 11 cases. In response to the COVID-19 crisis, the CARES Act expands Subchapter V eligibility for a period of one year (or longer if extended by Congress) by increasing the cap to $7,500,000 in aggregate secured and unsecured non-contingent and liquidated debt. Widespread distress and decreased asset values along with the subchapter’s debtor-friendly rules likely will make Subchapter V an even more attractive option for larger than originally-contemplated businesses who seek to benefit from its short timeline (debtors must file plans of reorganization within 90 days), its reduced administrative expense (there is no disclosure statement to prepare and pay for, no creditors’ committee to fund, and no administrative fees to be paid to the United States Trustee), and its elimination of the “absolute priority” rule (owners can retain their equity in a Subchapter V small business over the objection of a class of unsecured creditors, without paying those creditors in full).

With an unprecedented number of commercial real estate tenants not paying rent and potentially defaulting under their leases, many landlords and tenants may soon be entering into forbearance agreements that defer payment of rent and other financial obligations. The longer the COVID-19 crisis continues without tenants generating revenue due to business interruption and with rent and other expenses accruing, the more difficult it will be for tenants to restart their businesses and pay months of accumulated liabilities. Eventually, the focus for some landlords will shift from rent deferral to lease terminations. This alert identifies a potential, but very real, unintended consequence for landlords if the tenant files for bankruptcy after a lease termination, and offers potential solutions, recognizing that a one-size-fits all remedy does not exist.

Many leveraged real estate projects are under increased strain due to the economic fallout from the coronavirus pandemic. For mezzanine lenders—including the mezzanine lender who is no longer willing to forbear or the mezzanine lender who has always had a “loan to own” view of its mezzanine loan—this circumstance may mean pursuing remedies under the UCC. While there are differences in states’ enactments of and case law interpreting the UCC (and other laws that may supplement or supplant the UCC), the following general principles apply to an exercise of remedies under the UCC.

Although the Occupational Safety and Health Administration (OSHA) issued “Guidance on Preparing Workplaces for COVID-19” on March 9, 2020, critics noted the guidance is “advisory in nature” and does not create “new legal obligations.” After issuing four memoranda specific to respiratory protection and the N95 facepiece, OSHA is now turning its attention to enforcement in a response plan designed to address reports of COVID-19-related workplace hazards.

On April 6, in response to the COVID-19 pandemic, the Texas Supreme Court issued Emergency Order 9, which extends its previous Emergency Order 4 prohibiting any trial, hearing or other proceeding in an eviction to recover possession of residential property under Chapter 24 of the Property Code and Rule 510 of the Texas Rules of Civil Procedure until after April 30, 2020.

In an effort to provide retail investors clarity regarding their relationships with their investment advisers and the supervised persons of those investment advisers, the Securities and Exchange Commission (SEC) adopted new rules which require investment advisers that are registered with the SEC to provide a relationship summary pursuant to Form CRS and rule 204-5 under the Investment Advisers Act of 1940, if they have retail investors. A retail investor is a natural person, or the legal representative of such natural person, who receives or seeks to receive investment advisory services primarily for personal, family or household purposes. Investment advisers’ relationship summaries are required to be filed electronically through the Investment Adviser Registration Depository (IARD), posted on the advisers’ websites (where such websites exist) and delivered to the advisers’ retail investors. A new part 3 of Form ADV describes the requirements of the relationship summary. For additional information regarding Form CRS and related requirements see the SEC’s final rule.

While most of the country continues under “stay at home” orders, “essential” or “critical infrastructure” employees remain exempted. Yet, as outbreaks of COVID-19 are occurring throughout the country, “essential” businesses are not immune to infection, presenting risks for the workforce and the continuity of these businesses. Indeed, media reports have highlighted several “essential” businesses with outbreaks, resulting in large numbers of critical employees being absent in some areas, such as law enforcement and health care, and shutdowns of essential production, manufacturing and food supply operations. The CDC’s new interim guidance means to respond by providing updated protocols for “essential” businesses needing to ensure a sufficient workforce while better managing risks to employees and people interfacing with essential personnel. As discussions begin across the country about the lifting or modifying of stay-home orders, businesses should look to these guidelines as minimum standards to begin preparing their workplaces for a new normal.

Many companies have been hit hard by the coronavirus pandemic and the ensuing quarantines and social distancing, especially those operating in the real estate, hotel, airline, retail, restaurant, and oil & gas industries. Investor uncertainty regarding the impact and duration of the current pandemic has led to extreme market volatility, resulting in current trading prices for many companies that do not reflect their long-term values. This can make companies potentially vulnerable to coercive or abusive takeover tactics or activism by those seeking to acquire significant share positions at currently depressed prices, and who may not have long-term stockholder value as their primary goal. Companies whose stock has been negatively impacted by the recent market volatility should consider preparing rights plan materials and either adopting or placing them “on the shelf” for future implementation on very short notice if the need arises.

As the COVID-19 pandemic continues to halt daily life across the United States, orders limiting various real estate remedies have been issued by leaders at every level of government. Some governors, such as California Governor Gavin Newsom and New York Governor Andrew Cuomo, have ordered statewide moratoriums on certain evictions for the pendency of the state of emergency. Other states’ courts, such as Texas and South Carolina, have halted any judicial foreclosure and eviction proceedings statewide. These orders vary in which types of tenants are protected, from covering residential, commercial and industrial tenants, to only residential tenants whose non-payment of rent is due to lost income resulting from the COVID-19 pandemic. Many counties and cities have also issued their own moratoriums, adding to the uncertainty of what protections there are in place fortenants and borrowers. Finally, many of these moratoriums are operating on uncertain timelines, expiring in 30 days or lasting the pendency of a separate state of emergency declaration.

Crisis fuels crime: in this case, cybercrime. The coronavirus (COVID-19) global pandemic has created a virtual environment ripe for cyber fraud. Social distancing means an exponential rise in the use of technology for work, education, and leisure. Further, decreased human contact reduces the effectiveness of normal mechanisms of confirming that electronic requests are legitimate. In response, U.S. and international agencies have issued a slew of warnings about governmental impersonators using the pandemic to steal money and personal information or to distribute malware. As of the date of this article, current guidance on the most prevalent cyber threats and mitigation strategies is summarized below.

The coronavirus pandemic, stay-at-home orders and social distancing have put unprecedented strains on borrowers—hotels are closed or barely operational, retail properties are shuttered, tenants are not paying rents (and, in many jurisdictions, shielded from eviction)—yet owners must continue to meet their debt service payment (and other) obligations and fund their required reserves. In addition, the impact of Covid-19 on property valuations will likely result in borrowers failing to meet debt service, debt yield, loan-to-value or similar financial covenants.

The FCA Remains the Most Powerful Anti-Fraud Tool in the Government’s Arsenal
The most potent weapon in combatting corporate fraud against the U.S. government has been the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733. That fraud most often involves false statements and false or fraudulent claims for payment from the government (31 U.S.C. § 3729(a)(1)). There is also a “reverse false claims act” provision, which imposes liability for improper conduct aimed at avoiding paying the government or improper retention of an overpayment by the government (31 U.S.C. § 3729(a)(1)(G)). Since 1987 the government has recovered over $59 billion, with $3 billion being recovered in 2019.

As part of the $2.2 trillion CARES Act, today the Treasury Department and Federal Reserve announced two new lending programs—the Main Street Business Lending Program and the Municipal Liquidity Facility—as well as additional investment in and expansion of three emergency lending programs created by the Federal Reserve late last month. Interested parties have been invited to provide comments on the programs before officially launched sometime next week.

Businesses tracking website visitors and customers via cookies and other techniques are reminded that this is an area of increased scrutiny and many prior practices won’t be acceptable. Regulators have signalled changes need to be made to comply and they will increase enforcement.

On April 7, the City of Los Angeles issued a Worker Protection Order (WPO) as a follow-up to the city’s March 19 Safer at Home Order. Based on the outsized risk of exposure to the COVID-19 virus faced by many workers of essential businesses, the WPO states that each employee of the following types of essential businesses must wear a face mask or face covering:

On April 2, 2020, the FCC established the COVID-19 Telehealth Program, which will guide the disbursement of $200 million to health care providers for connected care services to their patients. We published our summary of the Program on April 3, 2020. As discussed in our summary, the FCC delegated to its staff the development of the procedures to disburse the funds.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed on March 27, 2020, sets aside $349 billion for Paycheck Protection Loans, which are available through banks, credit unions and other lenders (and guaranteed by the government) and allows for forgiveness of certain amounts. We summarized the Act’s small business loan provisions here; and what funds, corporate investors and their portfolio companies should know about eligibility for the payroll protection program here.

Nonprofit organizations have avenues to obtain significant financial relief under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2.2 trillion stimulus package enacted on March 27, 2020, designed to address the widespread economic disruptions caused by the COVID-19 pandemic. Many nonprofit organizations are facing acute financial strain as they work to navigate the unprecedent challenges posed by the pandemic. In addition, many nonprofit organizations will need to comply with the requirements of the Family First Coronavirus Response Act (FFCRA), which provides paid leave administered by employers but funded by the federal government. Nonprofit organizations should review their eligibility for three key CARES Act provisions and the FFCRA.

This is the first in a series of alerts on insolvency topics affecting single asset and other real estate projects. We have selected the present topic because it may provide lessons for real estate projects with no or severely reduced cash flow (a condition many projects find or will find themselves in due to the impact of COVID-19). Single asset real estate debtors have always confronted unique challenges in chapter 11, and those challenges increased when Congress imposed the requirement (with limited statutory exceptions) that the debtor, within 90 days of the order for relief, either commence interest payments or file a plan reasonably susceptible to confirmation. We will examine the nuances of these provisions and other challenges confronting debtors and lenders, in future alerts.

Many industries, including the real estate, hotel, airline, retail, restaurant and oil & gas industries have been especially hard hit (some indeed devastated) by the coronavirus pandemic, the ensuing quarantines and social distancing. Projects that were already troubled may be “pushed to the edge”—many real assets and borrowers will need “breathing room” so that they can withstand this dramatic downturn and potentially be in a position to “restart” when the economy “restarts.”

Performing an “Essential Activity”
Following an earlier declaration of a statewide public health of emergency and subsequent additional measures, on March 22, 2020, Louisiana Governor John Bel Edwards issued a Stay-at-Home Order instructing all Louisiana residents to shelter at home unless they are performing an “essential activity.” On April 2, 2020, Governor Edwards extended his Order until April 30, 2020. Under the Order, all nonessential businesses are temporarily closed.

Following declarations of emergency and actions in the counties surrounding Birmingham, the Alabama State Health Officer determined that further social distancing measures are necessary on a statewide basis to prevent the spread of COVID-19. On April 3, 2020, Dr. Scott Harris amended prior orders (which had suspended certain public gatherings statewide) to direct its residents to shelter in place.

The “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) was signed into law on March 27, 2020. Included in the $2.2 trillion dollar stimulus package are provisions changing the rules for retirement plans. Other provisions encourage charitable giving by allowing taxpayers to deduct up to 100 percent of their adjusted gross income for cash contributions to qualified charities. These changes present unique planning opportunities which can result in substantial tax savings. Discussed below are some of these opportunities.

As reported in our March 30 alert, the CARES Act (H.R. 748) was signed into law on March 27, 2020. The Acts appropriates $500 billion to aid mid-sized and large businesses, the aviation industry, and businesses “critical to maintaining national security.” The Treasury Department has already released guidance on how the aviation industry and businesses “critical to maintaining national security” can seek payroll grants and operating loans, worth up to $46 billion. These guidelines are instructive as mid-sized and large businesses and nonprofits begin to prepare for their chance at the Treasury window.