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While companies large and small are already succumbing to the economic effects of the coronavirus, experts say the wave of bankruptcies is going to get bigger, the New York Times reported. Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis. Even a meaningful rebound in economic activity over the coming months won’t stop it, Altman said. More than 6,800 companies filed for chapter 11 bankruptcy protection last year, and this year will almost certainly have more. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said. Without reform in the system, “we anticipate that a significant fraction of viable small businesses will be forced to liquidate, causing high and irreversible economic losses,” a group of academics said in a letter to Congress in May. Robert J. Keach, co-chair of ABI's Chapter 11 Reform Commission, said that many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs. But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Keach said. Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.

A bankruptcy court in Illinois has ruled that the force majeure provision in a restaurant lease excuses the tenant’s obligation to pay full rent during the time a stay-at-home order was implemented to slow the spread of COVID-19, the Wall Street Journal reported. The ruling appears to be the first of its kind after widespread closures triggered dozens of lawsuits across the country over missed rent payments. The legal concept was raised by tenants seeking rent relief after local health and government officials mandated the temporary closure of nonessential businesses and “on-premises” consumption of food and drinks. In Chicago, an Italian restaurant filed for bankruptcy protection in February and didn’t pay its rent from February to June. Its landlord, Kass Management Services Inc., sought to compel Giglio’s State Street Tavern to pay its rent from March to June or to vacate the premises unless rents are paid, according to filings at the U.S. Bankruptcy Court of the Northern District of Illinois. Bankruptcy Judge Donald R. Cassling ruled that the restaurant has to pay its March rent in full, but noted that the executive order by Illinois Governor J.B. Pritzker on March 16 suspending food consumption on-premises in restaurants, is grounds for force majeure for the other months. The order hindered the restaurant’s ability to perform by prohibiting on-premises consumption of food and drinks and restricted its business to takeout, curbside pickup and delivery, he added. These restrictions hurt the restaurant’s ability to generate revenue and pay rent. That said, the tenant “is not off the hook entirely,” said Judge Cassling. Given that the restaurant can still offer takeout, curbside pickup and delivery services, it should pay a reduced rent “in proportion to its reduced ability to generate revenue due to the executive order.”

Washington state has become the second jurisdiction to adopt an emergency diploma privilege amid the COVID-19 pandemic, allowing law graduates to skip the bar exam, Law.com reported. The Supreme Court of Washington on June 12 issued an order that allows graduates from American Bar Association-accredited law schools who are registered for the bar exam in either July or September to be licensed in the state without passing the test. That decision came less than a month after the high court initially rejected a proposal for a diploma privilege. Utah adopted a similar provision in April, but with more restrictions and requirements than Washington. The Washington high court’s terse order offered little explanation for the change in course, but wrote that it, “recognizes the extraordinary barriers facing applicants currently registered to take the bar examination in either July or September 2020.”