Mechanisms for Restructuring or Dissolving Financially Distressed Businesses
Covid-19 has created a fog for many businesses across the Commonwealth. Business plans have become difficult, if not impossible, to predict because of the uncertainty that surrounds the containment of the virus. It is inevitable that most businesses will be faced with extremely difficult financial decisions, and some will even have to consider filing bankruptcy.
Bankruptcy is not necessarily the end of your business. It can be used to restructure and move forward, or to liquidate. Prior to 2019, bankruptcy reorganization had developed a reputation for being a costly process, and those costs could be prohibitive for small businesses. However, on August 23, 2019, President Trump signed into law a series of bankruptcy amendments. One of the bills, H.R. 3311, ratified the Small Business Reorganization Act of 2019 (“SBRA”), which gives small business owners more flexibility and freedom during the Chapter 11 bankruptcy restructuring proceedings. The Act went into effect on February 19, 2020. According to Cliff White, the director of The Department of Justice’s U.S. Trustee Program (USTP), “[t]he SBRA represents an innovative effort to expedite and reduce the cost of bankruptcy for small business debtors to reorganize their debts and save their businesses.” Small business debtors who meet certain criteria may voluntarily elect to proceed under subchapter 5 of chapter 11 of the bankruptcy code. This new process is intended to allow for several benefits that include:
• Less time in Bankruptcy Court
• Greater flexibility when negotiating restructuring with creditors
• Appointment of a standing, private trustee, instead of adhering to the usual requirement to pay the United States Trustee (“UST”) quarterly fees.
• An overall more affordable and efficient process
While no small business owner looks forward to any form of bankruptcy proceedings, the SBRA has come into effect at just the right time. Small business owners now have more options and flexibility as they work through the economic impact of the COVID-19 pandemic.
Small Business Administration Economic Injury Disaster Loans
As of Saturday, March 21, 2020, small business owners statewide in the Commonwealth of Kentucky are eligible to apply for a low-interest loan from the Small Business Administration (“SBA”) to combat economic losses attributable to the Covid-19 pandemic. The loans, termed Economic Injury Disaster Loans by the SBA, are intended to provide working capital to small businesses suffering substantial economic injury as a result of Covid-19. Such economic losses are seemingly inevitable in Kentucky, where bars and restaurants were closed to in-person business as of March 16 and all non-essential businesses were ordered closed March 23. The loans may be used to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster’s impact. The loans offer up to $2 million in assistance and can provide critical economic support to small businesses to help overcome the temporary loss of revenue they are experiencing. The interest rate is 3.75% for small businesses and 2.75% for non-profits. Payment terms are flexible in order to keep payments affordable, with a maximum term of 30 years. Terms are determined on a case-by-case basis. Though administered by the SBA, a business of any size may apply for the loan.
The SBA encourages applicants to apply online. If you do not have internet access, contact the SBA at 1-800-659-2955.
The SBA Economic Injury Disaster Loan application is a three-step process. First, a business or non-profit submits its application for a loan of up to $2 million. A complete application includes a Business Loan Application (SBA Form 5) and other required documents, including the IRS Form 4506, complete copies of the business’s most recent Federal income tax returns, a personal financial statement (SBA Form 413), and a schedule of liabilities.
Second, the SBA will review your business’s credit before conducting an inspection and estimating losses. The SBA’s internal goal is to reach a decision on your loan application within two to three weeks. Third, the loan will close and funds will issue. The SBA prepares and delivers loan closing documents. Once executed, an initial disbursement will be made within five days.
OSHA Requirements
Because of the newness of COVID-19 and the fact that it is not a disease caused or created by particular industry or business specific exposures, Federal and State OSHA have promulgated no regulations for the protection of employees at work. However, the U.S. Occupational Safety and Health Administration has published a “Guidance on Preparing Workplaces for COVID-19” which may provide valuable information to employers, outlining steps to help protect the workplace. The Guidance is advisory in nature and informational in content. It is not a new standard or regulation and does not create new obligations for employers or alter existing responsibilities under present OSHA standards. Instead, employers continue to be bound by the General Duty Clause which requires employers to provide their employees with a workplace free from recognized hazards likely to cause death or serious physical harm.
Using traditional OSHA-required industrial hygiene practices which focus on the need for implementation of engineering, administrative and work practice controls and personal protective equipment (PPE), the Guidance identifies four exposure risk levels to determine appropriate precautions in the particular setting: Very High (healthcare workers performing procedures on known or suspected COVID-19 patients, those collecting or handling medical specimens from known or suspected COVID-19 patients, or those performing autopsies on persons who had the disease); High (healthcare deliver and support personnel, medical transport workers); Medium (jobs requiring frequent and/or close contact with others who may be infected with SARS-CoV-2, and high-density work environments); and Lower (jobs not requiring contact or interaction with other possible carriers, and having minimal occupational contact with co-workers and the public).
OSHA then recommends particular engineering and administrative workplace controls, safe work practices and PPE for each risk zone. The recommendations for each risk exposure category vary from little or no workplace controls beyond normal PPE and improved communications at work, to isolation, management of air supply, biosafety precautions, and extensive PPE (gloves, gowns, face shield or goggles, and mask or respirator).