April 2, 2020
In our last post, we referred to the relief available to small businesses under the new Small Business Reorganization Act of 2019 (SBRA) which is a new chapter of the Bankruptcy Code that streamlines bankruptcy relief for small businesses that otherwise struggled to get through a standard Chapter 11 case. On Friday afternoon, March 20, 2020, the President signed what is known as the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) that provides a $2 trillion stimulus in light of the hardships caused by the coronavirus pandemic. The CARES Act expanded the range of businesses that could qualify for SBRA relief by amending the SBRA to raise the eligibility threshold for businesses filing under the SBRA from $2,725,625 of debt to $7,500,000. The eligibility limit will return to $2,725,625 after one year
We are living in an extraordinarily uncertain time of health and economic developments including oil price wars, the COVID 19 virus and, in Utah, earthquakes. Measures taken to combat these difficulties can have significant negative outcomes on businesses. National, state and local government measures to buoy the economy are still developing and the efficacy remains unknown. There are some very recent developments that lenders and borrowers can benefit from in dealing with distressed financial conditions:
On March 22, 2020, the Federal Deposit Insurance Corp (FDIC) and other federal banking regulatory agencies, along with state banking regulators, the NCUA (the regulator of credit unions), and the Consumer Financial Protection Bureau issued the Interagency Statement on Loan Modifications and Reporting by Financial Institutions Working with Customers Affected by the Coronavirus to encourage financial institutions to work constructively with borrowers impacted by the disease and provide additional information regarding loan modifications. In summary, the policies give lenders substantially more latitude to work with affected borrowers by softening the regulatory and accounting impact of having delinquent or restructured credit.
The link to the Interagency Statement is: https://www.fdic.gov/news/news/financial/2020/fil20022.html?mc_cid=c19ae173ad&mc_eid=fabbc3a33b Borrowers, lenders and other business interests should open early candid lines of communication with one another to negotiate forbearances, extensions, refinancing, restructuring or other related relief. These arrangements must, however, be carefully documented. Jones Waldo lawyers are well qualified to assist any of these constituencies in this process.
The state of Utah has provided unemployment benefits and low-interest SBA loans for Utahns and Utah business owners impacted by COVID-19. You can access information about these benefits with the following links: Department of Workforce Services and/or the Governor’s Office of Economic Development.
These low-interest loans are available to businesses in all Utah counties. SBA low-interest federal disaster loans can provide up to $2 million of working capital to help Utah business owners in overcoming temporary losses of revenue they are experiencing as a result of the coronavirus.
The assistance may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid due to economic impacts. These loans are available to small businesses and private, non-profit organizations to help alleviate economic injury caused by the coronavirus. The following are links to the SBA programs:
If businesses in financial distress are unable to successfully take advantage of these or other solutions, the next step may be to consider filing bankruptcy, either to reorganize the business or to liquidate it in an orderly and evenhanded way. Bankruptcy affects both debtors and creditors, and Jones Waldo lawyers are well-positioned to represent those constituencies in navigating the complexities of a bankruptcy filing. The lawyers in the Jones Waldo group have the unique distinction of possessing both bankruptcy expertise and litigation skills to represent clients in bankruptcy, federal and state courts. Bankruptcy imposes an automatic stay immediately upon filing against virtually all actions to enforce claims, interests or remedies against the debtor. After the date of filing, there are multiple remedies, processes, and procedures to address the rights and outcomes of all constituencies. Small businesses have historically struggled to effectively reorganize under Chapter 11. To address this concern, Congress (without the impetus of current world events) enacted the Small Business Reorganization Act of 2019 that went into effect in February of 2020, creating a new subchapter of the Bankruptcy Code. The idea of the Act was to make small business bankruptcies faster and less expensive. Like all new statutory enactments, the Act provides both opportunities and risks for all constituencies in a case that must be carefully evaluated. At this time, this Chapter is only available to businesses with secured and unsecured debts, subject to certain qualifications, less than $2,725,625.00.
Recent economic events continue to develop by the day, and even by the hour, and accommodations offered to deal with the inevitable economic distress will continue to roll out in a highly dynamic environment. Jones Waldo attorneys are ready and able to advise and represent you through the whole range of these dynamics.
Jones Waldo’s Bankruptcy/Creditor Rights/Reorganization Group has been and continues to be a vital part of the firm’s full-service practice that provides excellence in legal advice and representation to our business clients. Since the firm was founded in 1875, our lawyers have represented financial institutions, large and small businesses of many kinds and individuals across the business spectrum as the Utah economy has grown and diversified. The Group has successfully represented lenders, vendors, committees, asset purchasers, trustees, debtors, landlords, commercial leasees, ad hoc committees and other constituencies in a variety of bankruptcy issues in cases of all sizes including the largest cases filed in Utah and in other jurisdictions in which our clients find themselves needing assistance. Just as important to our clients is our representation of lenders and borrowers in times of distress for restructuring, loan modification, workouts, refinancing’s and capital raises. Members of the Group have over 100 years of combined experience.
Jones Waldo’s historic representation of financial institutions provides us with comprehensive knowledge of the regulatory and accounting environment in which financial institutions operate and the restrictions and latitude they have in restructuring lending facilities in the face of economic distress. This knowledge benefits both lenders and borrowers. George Sutton, a partner of the firm, and former commissioner of the Utah Department of Financial Institutions is the state’s leading banking regulatory lawyer. Jeffrey W. Shields, the Chair of the Group, served as in house counsel to a major bank with charge over bankruptcy matters and distressed credits.
Jones Waldo lawyers are current on developments affecting our business clients, which in recent days is essential to providing sound advice.
Please contact any member of the Jones Waldo Bankruptcy/Creditor Rights/ Reorganization Practice Group. The Jones Waldo Group consists of:
Jeff Shields, Department Chair | firstname.lastname@example.org | 801-534-7278
George Pratt | email@example.com | 801-534-7334
Jerome Romero | firstname.lastname@example.org | 801-534-7305
Paul Smith | email@example.com | 801-521-3200
Jessica Wilde | firstname.lastname@example.org | 801-534-7338
*This material has been prepared for general information purposes only and should not be construed as, and does not constitute, legal advice on any specific matter or to any specific client.