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Claims Based on Insolvency in the Wake of The Coronavirus Pandemic

March 25, 2020

The coronavirus disease (COVID-19) arrived at a time when share buybacks and dividends were at historic highs (and indenture covenants notoriously light). But the pandemic may already have significantly reshaped the landscape for many companies that recently made payments to shareholders in the form of share buybacks, leveraged buyouts, or dividends, or were planning to take these actions before the pandemic began. Given the challenging financial outlook many of these companies now face, such transactions are likely to come under increasing scrutiny by creditors, who may look to utilize fraudulent transfer and other laws to determine whether money distributed by companies to buy shares or pay dividends can be recovered for the benefit of creditors, and whether companies can avoid their obligations to pay competing debt raised to fund such distributions. This article discusses the key issues that creditors, companies and their sponsors, and lenders should consider when assessing distributions to shareholders that may be contemplated going forward, and those that have already been completed.

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Benjamin Finestone
Phone: 212-849-7341

Susheel Kirpalani
Phone: 212-849-7200

Deborah Newman
Phone: 213-443-7480

John Shaffer
Phone: 213-443-3667

Matthew Scheck
Phone: 213-443-3190

James Tecce
Phone: 212-849-7199

Patty Tomasco
Phone: 713-221-7227

Eric Winston
Phone: 213-443-3602