Changes in the rules governing small business bankruptcies came at a fortuitous time earlier this year and could provide an easier path to reorganization as many more companies are likely to become insolvent due to the continued effects of the COVID-19 outbreak.
In effect since mid-February, the Small Business Restructuring Act makes Chapter 11 proceedings faster, cheaper and more efficient for companies that come to court with debt loads below a new statutory cap — just in time for them to navigate the financial turmoil resulting from the coronavirus pandemic, according to bankruptcy professionals.
Passed by Congress in August 2019 and enacted in February, the SBRA created a new Subchapter V of Chapter 11 of the federal Bankruptcy Code that streamlines the reorganization process for debtors with less than $2,725,625 of debt by eliminating disclosure and solicitation obligations and tightening case deadlines to ensure a quick trip through the process.
The Coronavirus Aid, Relief and Economic Security Act that passed in late March in response to the crisis raised that debt cap to $7.5 million in an effort to help companies struggling in light of widespread business shutdowns enacted to stem the spread of the disease.
The CARES Act also included a $349 billion fund to provide Paycheck Protection Program grants and loans to small businesses, with the money being made available for those companies to cover their payroll, lease, mortgage and utility obligations. The fund approved more than 1.6 million loans through nearly 5,000 lending organizations, exhausting its original appropriation by April 16.
The Senate approved another $250 billion in funding for the PPP loan program on April 21, and the entire $484 billion aid package was overwhelmingly approved by the House of Representatives two days later.
These protections, however, may not provide the lifeline for small businesses it was designed to save.
You have questions about small business bankruptcy loans, please give Partner Attorney, Frank Schepers a call at 402-397-7300.
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