We’ve received several questions about the newly enacted small business bankruptcy provisions. Below are a few of the frequently asked questions that businesses are asking.
Q: I’m a small business owner in New Hampshire who has been hit hard by the coronavirus pandemic. What can I do to ease burdens on my business in the near term to help get through this period?
A: In many cases lenders, trade creditors and landlords will negotiate concessions or terms if you can demonstrate the business’s underlying long-term strength.
Q: Is reorganization in bankruptcy an option?
A: Many considerations go into determining whether a business can successfully reorganize, but new Subchapter V of Chapter 11 created by the Small Business Reorganization Act (“SBRA”) makes the tools and protections of Chapter 11 reorganization more practical for small businesses.
Q: What is a “small business”?
A: Subchapter V is available to individuals or entities engaged in commercial or business activities (other than primarily owning/operating real property) who owe no more than $7.5 million.
Q: What are benefits of Chapter 11, Subchapter V for a small business?
A: More control over the process of developing a plan of reorganization makes it more likely that a plan can be efficiently proposed and approved.
Also, before the SBRA, a class of impaired creditors needed to vote in favor of the plan, which often led to the business being forced to agree to pay more than it could reasonably afford.
Q: Can I still own my business after a bankruptcy?
A: In a regular Chapter 11 case, the so-called “absolute priority rule” prevents an owner, absent the contribution of cash or other significant “new value,” from retaining ownership over the objection of a creditor who would not be paid in full under the plan.
However, under Subchapter V, the absolute priority rule does not apply.
Q: Does my personal liability for business debt get discharged under Subchapter V?
A: If you personally guaranteed debt of your business entity, your personal liability will not be discharged as a result of the entity filing bankruptcy.
You should consult a professional advisor to assess your personal exposure and the effect of a bankruptcy filed by your business.
For more information on this topic, visit McLane Middleton’s Business Recovery Center at McLane.com.
Know the Law is a bi-weekly column sponsored by McLane Middleton, Professional Association. We invite your questions of business law. Questions and ideas for future columns should be emailed to [email protected]. Please note – Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.