On March 17, 2020, Ontario declared a state of emergency and ordered the closing of restaurants, movie theaters and concert venues, among other restrictions. The Premier of Ontario has stated "We are facing an unprecedented time in our history." This formal declaration is reflective of the widespread disruption of "business as usual" throughout the Canadian economy.
Remarkably, the Ontario court system has also shut down—other than for emergency matters.
Individual businesses are facing unprecedented challenges. Sales are being disrupted and liquidity is drying up. For many businesses, meeting their ongoing liabilities will be challenging. Defaults on payments to landlords, lenders and suppliers may be imminent.
The good news is that the economic community has recognized this extraordinary economic reality and is providing some relief. Governments are deferring certain tax obligations, and banks have indicated a willingness to grant accommodations to their borrowers in appropriate circumstances.
How can businesses respond to these challenging times? Here are some practical suggestions:
- Reduce cash expenditures, to the extent possible.
- Revisit cash flow projections in light of the new reality. Continuously revise these projections as matters evolve. Understanding your cash position is critical in determining your ability to "weather the storm".
- Review provisions of credit agreements, leases and other material contracts. Identify current financial defaults and imminent defaults.
- Develop a plan to address any liquidity issues, which should include a communication strategy with various stakeholders, including lenders, suppliers, customers and employees.
- Speak with legal advisors about the best approach to communicating with counterparties. In today's environment, stakeholders are likely to provide accommodations in appropriate circumstances. Consider payment deferrals, interest reductions/capitalization and/or covenant amendments. Early communication of any issues can provide the time required to address them in a pragmatic way.
- Although it may be logistically challenging in today's environment, in appropriate circumstances obtaining court protection to effect a restructuring or a sale of the business remains an option.
At Fasken, our team of restructuring lawyers are available to guide you through these turbulent times. We have a great deal of experience in dealing with financial distress and are available to assist you in overcoming these extraordinary economic conditions. Please do not hesitate to reach out to us with any inquiries you may have.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
