The COVID-19 virus and the containment efforts have many American businesses (real estate companies, construction companies, developers, retail stores, services industry professionals, restaurants and many others) headed toward tremendous financial distress.

Our firm has the capabilities and experience to help you and your clients develop and execute a plan to see these businesses through these tough financial times. We are experienced in working with lenders, landlords and trade creditors to achieve out of court workouts whenever possible. But, if necessary, we have the knowledge and experience to file and prosecute cases in the United States Bankruptcy Court.

There is a brand-new tool for small businesses that became available on February 22 of this year that provides relief under Chapter 11 of the bankruptcy law. The new Small Business Reorganization Act of 2019 is comprehensive and much more small business friendly than existing law and allows much greater flexibility for small businesses to reorganize in bankruptcy. The following is a quick overview of the highlights of the new law.

To qualify under the new law, the company must be involved in commercial or business activity with no more than $2,725,625 in debt which means this method of restructuring is a viable tool for many small businesses affected by COVID-19.  The purpose of Subchapter V is to reduce the time and cost of a small business reorganization. After filing, the company maintains the right to operate the business and has exclusivity in filing a plan of reorganization.  There is no unsecured creditors committee appointed under this new law and it is easier for the owner of the business to keep his or her ownership interest and equity stake in the business.

The timeline for a small business bankruptcy is shortened under the new law.  The bankruptcy court must conduct a status conference no more than 60 days after the filing.  At least 14 days before the conference, the debtor is obliged to file a report describing its efforts to reach a consensual plan of reorganization with its creditors. The company is required to file a plan within 90 days. All of this ensures that the company will be able to receive relief quickly, so the business can get back to what’s important all while maintaining control of the business.

If Subchapter V is available, the company will be required to file a copy of the business’s balance sheet, cash-flow statement, statement of operations, and federal income tax return or a sworn statement that documents like these do not exist. The company will ultimately file a plan of how it plans to treat its creditors. Under Subchapter V, a Small Business Trustee will be appointed in every case and this trustee will act as a guide for those filing for relief.      

Subchapter V also offers a unique tool to small businesses who are having financial difficulties.  An individual small business debtor may alter the mortgage on his or her personal residence provided a portion of the mortgage loan was used in connection with the debtor’s business.     

The new Subchapter V has considerably improved small business reorganization under chapter 11 by making it a realistic option for surviving the tough times. The minimization of creditors’ committees, plan exclusivity, and the support of a Small Business Trustee are intended to give more small businesses a chance at reorganizing instead of simply liquidating. 

We are here to help businesses small businesses survive and prosper. Please contact Justin G. Williams at 205-633-0218 or any of our attorneys listed to discuss your situation and talk about how we can help your business (or your client’s business) get through these challenging times.