As a direct result of the Coronavirus, an invisible enemy affecting our South Florida community, the country, and rest of the world, small business owners are facing unprecedented uncertainty as to what will happen and whether or not their business will survive. Many business owners, with income coming to a halt, are drawing on their lines of credit and savings to pay their employees and vendors. The Federal government has announced loan assistance for small businesses that will hopefully provide the necessary relief. The loan assistance programs may not be enough for many businesses.
On August 12, 2019, unrelated and before the Coronavirus outbreak, the Small Business Reorganization Act of 2019 was enacted into law and came into effect on February 19, 2020. In summary, the Act proposes to make it easier and less expensive for Small Businesses to remain open and reorganize their debts under Chapter 11 bankruptcy electing under a new Subchapter V provision. Traditionally, small businesses found filing Chapter 11 bankruptcy prohibitive and expensive as a result of all the complexities involved. Subchapter V creates an avenue under Chapter 11 Bankruptcy that aims to remove many of the complexities in a traditional Chapter 11 which include eliminating the creditors committee and thus removing the vote requirement on the Debtor’s Plan for Reorganization. A Small Business electing to file under Subchapter V, must devote all of the business’s disposable income to the plan of reorganization and must pay in the plan at least what the business’s creditors would receive if the business was liquidated.
A Small Business Debtors is a debtor with less than $2.7 million in debts seeking to reorganize their debts. Section 113 of the CARES Act (Coronavirus Aid, Relief and Economic Security Act) expanded the eligibility to $7.5 million in debt. A Debtor whose primary activity is the business of owning single asset real estate is excluded from the Act.
An experienced bankruptcy attorney can advise you in more detail and help you avoid any pitfalls or missteps in this process. The above information is intended solely for informational purposes and is not legal advice nor a substitute for legal advice. Each case or situation is different, and you should always consult with an attorney.
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