Client Alerts

Doing Business with Troubled Companies in the Age of COVID-19

By: Richard G. Hardy

About: Bankruptcy & Insolvency Litigation, Corporate Restructuring, Bankruptcy & Creditors’ Rights

April 3, 2020


This outline is intended to provide some basic considerations and tools to be used in connection with anticipating non-payment by customers during times of economic disruption, including the disruption we are anticipating and witnessing arising out of the current COVID-19 crisis. Anticipating non-payment rather than waiting for it to occur may give you time to minimize your exposure to a particular customer by obtaining credit enhancements from that customer or legally modifying terms of sale to improve your position.

The Uniform Commercial Code (“UCC”) provides several remedies when a seller has reason to believe that its customer may be unable to abide by the payment terms of the agreement. The ability to use those remedies is usually dependent on a seller having a commercially reasonable belief that a customer is insolvent.


Review your customer list and accounts receivable to identify which customers are likely to be affected by the COVID-19 crisis and look for the following warning signs of insolvency:


Many of the remedies available under the UCC require either that a seller has “reasonable grounds for insecurity” concerning a customer’s ability to pay or that a customer be insolvent. Obviously, having evidence that a customer is insolvent also serves as a “reasonable ground” for feeling insecure about a customer’s ability to pay.


As stated above, if a seller has reasonable grounds for insecurity, it can demand adequate assurance of performance.


Reclamation is a remedy that allows a seller to take back goods already delivered to a customer if certain conditions are met.


Whether seeking adequate assurance of payment on a current order or an order placed by a customer but not yet accepted, consider obtaining the following credit enhancements:


A recent change to the Bankruptcy Code permits businesses with debts up to $7.5 million to file a relatively inexpensive and speedy bankruptcy proceeding. Accordingly, it can be anticipated that more customers will make use of Chapter 11 than before. If your customer files a bankruptcy proceeding, be certain to take the following steps:

The information provided in this outline speaks only to the information and guidance we have available as of the date of publication and is subject to change. We will continue to follow further issued guidance and regulations and endeavor to post those updates via our website. Please continue to follow these updates at This legal update was created by Ulmer & Berne LLP, and is not intended as a substitute for professional legal advice. For any questions, or for further information, please contact Richard G. Hardy at