Locke Lord QuickStudy: Rhode Island Implements Non-Liquidating Receivership Program to Assist Businesses ‎Impacted by COVID-19‎

On March 31, 2020, the Rhode Island Superior Court announced a temporary program to aid previously healthy businesses that have become insolvent due to the COVID-19 pandemic in Rhode Island.  The COVID-19 Non-Liquidating Receivership Program (the “Program”) is available to any entity that: 

1. Was able to pay its debts in the ordinary course of business (i.e., not in default of any of its financial obligations) before January 15, 2020; and
2. Has been impacted by the COVID-19 pandemic such that it is no longer able to pay its debts as they come due.

A business can show that it was financially impacted due to COVID-19 through any of the following:

1. Twenty percent (20%) reduction in year-over-year gross revenue for any sixty (60) day period beginning January 15, 2020, or later; or
2. It was forced to stop a substantial portion of its business due to “stay at home” or similar governmental orders; or
3. It experienced a cash flow interruption attributable to COVID-19; or
4. It is otherwise unable to pay its debts due to COVID-19-related business disruption.

The goal of the program is to supervise affected businesses as they continue to operate during and after the pandemic and offer protection as they seek to regain solvency.  The Program may also be available to any business that was placed into typical receivership after January 15, 2020, and is otherwise eligible for the Program.

Upon successful admission to the Program, the business must submit an operating plan 
(an “Operating Plan”) that sets forth the operating rules and restrictions for the business, and a plan for addressing its past-due debts.  All creditors and potential creditors of the business will be notified that the business has been admitted into a non-liquidating receivership and will receive a copy of the Operating Plan.  The court will also appoint a Non-Liquidating Receiver, in most cases an attorney licensed in Rhode Island, to oversee the business throughout the Program.  

The business will continue to operate throughout the Program, albeit in compliance with the Operating Plan, as the goal of the Program is to allow the business to get back to its pre-COVID-19 operations with minimal additional administrative fees and expenses.  While the business is under the Program, creditors and other claimants, including governmental or regulatory entities, are prevented from bringing suit or legal action against the business.  The prohibition on suits also applies to actions related to events that took place before January 15, 2020.  Any such claimant must file its claim with the court and will be heard and considered along with the Operating Plan.

Notably, the Program is not intended to eliminate a business’s debts.  Rather, the Program will make it possible for a business to continue operating as it works to regain solvency.  The Program also enables businesses to receive other forms of relief, such as Small Business Association loans or other similar programs as a part of its Operating Plan.  

Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.