By Associate Attorney Danielle Nodar
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While the world reels from the impact of government-mandated shutdowns and the threat of illness due to coronavirus, many businesses are reexamining their contracts to determine their obligations and rights during these unprecedented times. Some contracts may contain a force majeure clause excusing the parties from performing under the terms of the contract. A force majeure clause allows parties to cancel or delay the performance of their obligations, or even terminate the contract altogether, if it is impossible for a party to perform due to events that cannot be reasonably anticipated or controlled by the parties.

But not all force majeure clauses are created equally. A sample force majeure clause might look something like this:

     "The Parties’ performance under this Agreement is subject to acts of God, war, terrorism, disaster, government regulation, or any other emergency beyond either Parties’ control which makes it impossible for a Party to perform their obligations under this Agreement. Either party may cancel this Agreement for any one or more of such reasons upon written notice to the other Party."

Some force majeure clauses may excuse performance of one party but not the other. Or, perhaps performance is excused by not the payment of money. For example:

     "Other than for Tenant's obligations under this Lease that can be performed by the payment of Rent, such party shall not be responsible for any delays due to strikes, riots, acts of God, shortages of labor or materials, war, or acts of terrorism, or any other causes of any kind whatsoever which are beyond the control of such party."

If your contract contains a force majeure clause, is coronavirus a triggering event? Perhaps if the contract explicitly mentions government-mandated closures or pandemics, but what about disasters or acts of God? Before you decide not to perform, you should get advice from an attorney who can interpret the contract for you. If the other party disagrees with you, litigation over whether or not coronavirus is a triggering event will be costly and time consuming. It is normally in everyone’s best interest to negotiate.

If you have questions about how your contractual obligations may be impacted by coronavirus, your rights under a business contract, or your options to alter or terminate a contract, please contact Jesson & Rains.

Mecklenburg County’s Stay-At-Home Order expired yesterday. As we previously wrote here, the County’s order was stricter than the state’s.  Therefore, starting today, there will be some businesses that can start operating (for example, pet groomers, vape shops, and realtors, to just name a few).  However, the state’s stay-at-home order is in place through May 8, so it is not yet business as usual.
 
A link to Governor Cooper’s Order is here.  Keep in mind, even if your business is deemed “essential,” you must still comply with social distancing and keep employees and customers six feet away from one another.
 
Please contact Jesson & Rains if you need assistance in getting back to work!
 

We previously wrote about the Families First Coronavirus Response Act, which expanded emergency FMLA leave to employers with fewer than fifty employees. The Act requires employers to pay partial payments to employees who have to stay home to care for children because no other caretaker is available when that employee cannot telework and would otherwise have work to do at their job. The Act as signed by the President contains a provision stating that the Department of Labor has authority to issue regulations exempting small businesses with fewer than fifty employees from the Act if “the imposition of such requirements would jeopardize the viability of the business as a going concern.”

The Department of Labor has spoken, and we now have the exemption regulations. Instead of a small business potentially being exempted as a matter of course, the regulations are applied on a per-employee basis. A small business employer can deny emergency FMLA leave to an employee if:

     1. such leave would cause the small business's expenses and financial obligations to exceed available business revenue and cause the small business to cease operating at a minimal capacity; OR

     2. the absence of the employee or employees requesting such leave would pose a substantial risk to the financial health or operational capacity of the small business because of the employees’ specialized skills, knowledge of the business, or responsibilities; OR
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     3. there are not enough workers who are available, able, willing, and qualified to perform the labor or services provided by the employee or employees requesting leave, and those labor or services are needed for the small business to operate at a minimal capacity.

Because it is applied per-employee, and not to the small business as a whole, the small business employer is still required to post the FFCRA notice because the law technically applies to all small businesses. 

An employer does not need to send anything to the Department of Labor if it chooses to exercise the exemption. It needs to keep records of each approval and denial of such leave. If an employer decides to deny an employee’s request for emergency FMLA leave, the employer must document its authorized officer’s determination that the criteria is satisfied. If an employee makes oral statements supporting leave, the employer must document them. Documentation must be retained for at least four years.

If you are a small business owner and wondering how these laws apply to you or your employees, please give Jesson & Rains a call.

By Attorney Edward Jesson
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Whether good or bad, it is sometimes necessary to dissolve a corporation or limited liability company (“LLC”). If the business has no assets or liabilities, then closing down is relatively simple. However, business owners can get into trouble when they attempt to close down their businesses if it has remaining assets and liabilities. It is recommended that they work with an attorney. There are some subtle differences between dissolving an LLC and a corporation, but we are just going to use a corporation as an example below.

The first step in voluntarily closing a business in North Carolina is to file the articles of dissolution with the Secretary of State. Once the articles of dissolution are filed, the corporation still must adhere to its bylaws with regards to its directors and shareholders. However, the corporation is no longer allowed to carry on its normal business and must only do things in furtherance of winding up its affairs and liquidating. The North Carolina Business Corporation Act specifically states that a business may:

• Collect its assets;
• Dispose of property not to be distributed to shareholders;
• Discharge its liabilities;
• Distribute the remaining property to shareholders; and,
• Do any other act necessary to wind up and liquidate.

Any act further than those necessary to wind up and liquidate may invalidate the dissolution, which could have potential liability ramifications at a later date.

The next step in the process is liquidation. During this process, the owners of the business are responsible for selling assets and for settling the corporation’s debts. In the North Carolina Business Corporations Act, there are notice and publication procedures that a corporation can use to give notice of its dissolution or liquidation to creditors or potential creditors. While the Act does not impose any legal requirement to do so, it is beneficial for businesses to follow this procedure because it starts a clock and establishes deadlines within which creditors must bring claims.
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The potential claims against a corporation fall into two main camps: known claims and unknown claims. If a corporation sends written notice of its dissolution to known creditors, it can establish a claims due date of 120 days from the date of the notice. If the claim is not made by that deadline, the claim will be considered time barred. For unknown claims, a corporation must publish, among other things, notice of its dissolution in a newspaper in the county where the dissolved corporation has its principal office. This will start a five-year clock for unknown claims.

Generally, when liquidating a corporation, all assets of the corporation will be distributed to any creditors first and then to the shareholders. If the assets are not properly distributed (e.g. if a shareholder received assets instead of a creditor), then the aggrieved creditor could potentially file a lawsuit against the shareholder and against the directors who authorized the distribution.

As you can see, closing down a business can be a minefield for all involved. The attorneys at Jesson & Rains can help you close down your corporation or LLC properly or help you figure out alternatives to closing down your business.

On Friday, March 27, 2020, President Trump signed into law the CARES Act. It is 335 pages long and covers a wide range of programs, tax credits, and industries.

We read it last weekend, so you don’t have to. It is so long, we’re sending out two blogs this week. This second blog deals with individual benefits and healthcare provisions.

     1. Recovery Rebates for Individuals.

The IRS will issue rebates to eligible individuals (everyone except non-resident aliens, dependents, and estates and trusts) in the following amounts:

• $1,200 ($2,400 in the case of eligible individuals filing a joint return), plus
• $500 for each qualifying child (generally defined as a dependent under the age of 17)

But the credit shall be reduced by 5 percent of so much of the taxpayer’s adjusted gross income (based on 2019’s tax records if filed; if not, 2018’s) as exceeds:

• $150,000 in the case of a joint return,
• $112,500 in the case of a head of household, and
• $75,000 in the case of a taxpayer not described above.

This means that a married couple filing jointly with no children will not receive any credit if their income is $198,000.

As written, the credit will be refunded to the account the IRS has on file for past refunds in tax years 2018 or 2019, and the IRS will mail a notice to the taxpayer upon payment. The IRS has recently issued guidance that it will create an online portal in the coming weeks where people can register for their rebate if the IRS does not have an account on file for them.

     2. Special Rules for Use of Retirement Funds

An employee who takes money out of a retirement account for a “coronavirus-related distribution” will not be subject to the 10% early distribution tax penalty so long as the amount taken out of the plan for that employee is not more than $100,000.

The employee can choose to repay it in one or more payments over the next three years. Otherwise, the income tax is spread out over the next three years automatically unless the taxpayer elects for it not to be (we’re assuming it would all be assessed at the end of the three-year period if a taxpayer made this election and did not repay it).

A “coronavirus-related distribution” is defined as any distribution from an eligible retirement plan made: (i) on or after January 1, 2020 and before December 31, 2020, (ii) to an individual who is diagnosed with COVID-19, or whose spouse or dependent is diagnosed with COVID-19, or who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, had hours reduced, or other factors as determined by the Secretary of the Treasury
during the COVID-19 pandemic.

The maximum loan amount against a 401(k) or 403(b) plan has been increased from $50,000 to $100,000 if taken before September 23, 2020. Additionally, if the due date of any other outstanding loan occurs between the date of enactment of the CARES Act and December 31, 2020, the due date shall be delayed by one year.

Finally, Required Minimum Distributions are suspended for 2020. If an employee has already taken a required minimum distribution in 2020, there are some workarounds – talk to your plan provider.

     3. Special Rules for Charitable Donations

The CARES Act allows people to take an “above the line” tax deduction for charitable contributions of up to $300 for 2020, which lowers gross income even for those of us who do not itemize (thanks to the $25,000 standard deduction). Additionally, limits on certain charitable or other qualified contributions are disregarded for 2020.

     4. Student Loans

Federal student loan payments are deferred through September 30, 2020. During this time, no interest shall accrue, and the deferred months shall count towards any loan forgiveness period. The deferred payments are not to be reported negatively to a credit bureau, and any involuntary collections (wage garnishment, tax refund garnishment) are suspended.

     5. Healthcare Provisions

The CARES Act expands Medicare and Medicaid coverage for telehealth and other remote care services and COVID-19 related treatments; allows telehealth to be used for hospice recertification requirements; allows high-deductible health plans with a health savings account to cover telehealth services before the members reaches his or her deductible; eliminates the home visit requirements for doctors of dialysis patients; increases coverage and lowers cost for COVID-19 tests and treatments; and increases reimbursement for over-the-counter drugs through certain plans.

     6. Credit Protection

If a creditor agrees to allow deferred or partial payments, or agrees to a forbearance of payments, the creditor has to report the account as “current” to the credit bureaus (or whatever the account status was prior to January 31, 2020 if not current). The covered period is from January 31, 2020, until 120 days after the date the national emergency declaration is terminated. This credit protection does not apply if the account is charged off.

     7. Federally-Backed Mortgages - Foreclosures & Evictions

The CARES Act prohibits foreclosures on certain federally-backed mortgages for a 60-day period beginning on March 18, 2020, and provides up to 180 days of forbearance for borrowers who have experienced a COVID-19-related financial hardship. Here, a federally-backed mortgage includes loans for properties house one to four families and: insured by the FHA, insured under section 255 of the National Housing Act, purchased by Fannie Mae and Freddie Mac, made, guaranteed, or insured by the VA or Department of Agriculture, and certain HUD-insured loans. When a forbearance request is made, the servicer shall not require any additional documentation other than the borrower’s attestation to a financial hardship caused by COVID–19. A borrower can also request an additional 180-day forbearance if made during the covered period. No interest or fees shall accrue during this period.

Federally-backed mortgages on multi-family properties (five or more) may also qualify for forbearance. Upon receipt of an oral or written request for forbearance from a multifamily borrower, a servicer shall--
     (A) document the financial hardship;
     (B) provide the forbearance for up to 30 days; and
     (C) extend the forbearance for up to 2 additional 30-day periods provided that the borrower’s request for an extension is made during the covered period and at least 15 days prior to the end of the forbearance.

For the multi-family borrowers who take advantage of forbearance, they cannot evict tenants or charge them late fees during the forbearance period. The types of federally-backed mortgages that qualify under the multi-family rules are larger (basically, any loan that has anything to do with the federal government or its agencies).

In this section, the covered period ends on the date that is the earlier of (1) the date the national emergency declaration is terminated or (2) December 31, 2020.

     8. Other Evictions

For 120 days beginning on the date of enactment of the CARES Act, landlords are prohibited from initiating evictions or charging fees, penalties, etc. for nonpayment of rent if the landlord’s mortgage on that property has anything to do with the federal government or its agencies.