By Christopher W. Peer, Esq. and John A. Polinko, Esq.
What has transpired across the United States since March 2020 is unprecedented in modern times, socially and commercially. The toll on Americans, both personally and professionally, has been tremendous. With that, however, came actions by government – national and state – in an effort to minimize the blow. An unparalleled amount of money was made available to businesses to, in effect, keep them afloat while the pandemic ravaged the economy in ways not seen in over one century. Moratoriums were set into place to avoid mass defaults. Despite the obvious short-term positives, this “pause” has created a potential for a false impression of operational health. History tells us that risks exist around the corner that cannot be solved by new, and arguably short-term, solutions provided due to a once in a century event.
The result? Although certain sectors of the economy continue to struggle with the effects of COVID, particularly the service and hospitality industries, all indications point to the recent and current free flow of money and many businesses, through careful planning and concessions, being able to bolster their coffers in anticipation of when “normal” returns. But, when will “normal” return and what will “normal” bring? As to the former, no one can say for certain. As to the latter, there is one near certainty…the assistance and protections put into place in light of the pandemic will fade away. Inarguably, that will have a demonstrable impact on the economy. Are you ready? “The best preparation for tomorrow is doing your best today.” [H. Jackson Brown, Jr.].
Prior to the pandemic’s arrival, The Small Business Reorganization Act of 2019 (SBRA) was enacted to, among other things, allow small businesses to take advantage of and access certain aspects of chapter 11 bankruptcy. Traditionally, Chapter 11 has been too expensive and cumbersome for small businesses. More importantly, it almost certainly resulted in a sale of the small, or family, business to the dismay of ownership that had invested years of blood, sweat and tears into developing and growing the enterprise. An “American Dream” ownership is not ready to abandon.
So long as a business’s debt, including non-contingent, liquidated, secured and unsecured debt, does not eclipse a defined threshold, presently $7,500,000.00, “Subchapter V” debtors can take advantage of relief only available to them under the new legislation, including new opportunities for the debtor to retain control and propose and confirm a plan of reorganization that creditors will have difficulty upending. The cost is commitment of future earnings to repay the old debts. This is a tool to keep small/family businesses on the track envisioned by ownership and entrepreneurs.
If well planned, the SBRA can be a powerful tool to keep the business, and the business owner, in the driver’s seat during and after bankruptcy. The time for planning and considering options is unlikely today, but as history shows us, tomorrow is coming and small businesses should consider SBRA as an option when business owner sees that conditions and economic climate changes are coming. With the requisite upfront planning, the results could be game changing.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.