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The last several weeks have brought limited relief to businesses grappling with an immediate economic downturn that is the result of COVID-19 and social distancing. However, some businesses will require more help than short-term loans backed by the government can provide. They will need to restructure mortgage loans, reduce debt service, or even eliminate unsecured debt, such as trade payables.
To address this, Congress has made it easier to reorganize under Chapter 11 of the Bankruptcy Code by dramatically expanding the scope of businesses that can take advantage of a new, streamlined Chapter 11 process designed for small businesses. This streamlined process was previously only available to companies with up to about $2.7 million in debts. Now, for the next 12 months only, companies with up to $7.5 million in debts will be eligible to reorganize as small business debtors.
These businesses will be able to use powerful tools under the Bankruptcy Code to clean up their balance sheets and “right size” existing debt, while also getting breathing room and preventing creditors from seizing assets.
Key aspects of a streamlined small business Chapter 11 case include the following.
We are all heading into a period of significant economic disruption, likely for an extended period of time until we have reliable testing, strong therapeutics, and a vaccine for the novel coronavirus causing COVID-19. In the meantime, Congress has given small businesses an important tool. It's available for the next 12 months. After that, all bets are off.
Andrew C. Helman is an attorney and a partner at Murray, Plumb & Murray in Portland. He specializes in business law, including work-outs and restructuring. He can be reached at firstname.lastname@example.org.
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