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.