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  • Small Business Bankruptcy Reorganization Act (SBRA) Options in a COVID-19 World

    Oct 1, 2020

    IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Erin O’Leary. Ms. O’Leary, is an attorney at Employer Solutions Law (https://employersolutionslaw.com/):

    Small Business Bankruptcy Reorganization Act (SBRA) Options in a COVID-19 World

    Introduction

    Distressed small businesses looking for a fresh start have new options for reorganizing their business to eliminate bad debt and preserve favorable assets. Under the new Small Business Bankruptcy Reorganization Act (“SBRA”), eligible small businesses that might be considering closing their doors due to heavy debt obligations may be able to find a solution to keep their business operational.

    Background

    Traditionally, businesses that are unable to meet their financial obligations have had two options:

    1. Closing the doors and liquidating their assets through a Chapter 7 bankruptcy, or
    2. Pursuing a restructuring under the Chapter 11 bankruptcy rules with creditor and court appointed oversight.

    Unfortunately, the complicated process, high fees, and restrictive oversight have made most Chapter 11 bankruptcies unsuccessful.

    In an effort to make bankruptcy reorganization available and successful for more small business, the SBRA was passed in August 2019 and became effective in February 2020.  It creates a new option for smaller businesses that provides many of the same advantages of a Chapter 11 bankruptcy with a far more efficient and streamlined process. The new Subchapter V option is available to businesses with less than $2,725,625 in debt.

    Advantages

    Pause Button.  Immediately upon filing a petition to reorganize your business, all creditor collection activity against your business automatically stops for at least 30 days. This gives the business owner a moment to pause, breath, and proactively plan for the future.

    Creating a Plan. Under a SBRA Subchapter V reorganization, the business owner works with his or her attorney to create a plan for repaying the debt on the assets that the business needs. The repayment plan typically takes three to five years.  This gives the owner an opportunity to take a good hard look at what is working and is not.

    Discharge. At the end of the reorganization plan, the business receives a discharge of all excess debts that were not included in the repayment plan.

    Eligibility

    The SBRA is available to companies with debts less than $2,725,625. However, that number has temporarily been increased to $7,500,000 under the CARES Act in response to COVID-19. The increased cap is scheduled to expire on December 31, 2020 when the CARES Act expires.

    The new Subchapter V under the SBRA is intended to address some of the barriers faced by otherwise viable small businesses by streamlining the process, removing hurdles, and reducing costs. For eligible companies, the SBRA provides a new option for stripping away unnecessary debts and assets while retaining control of the company, allowing the company to emerge reorganized and profitable.

    Conclusion

    Unprecedented economic impact from slow-downs and forced temporary closures has successful businesses considering whether they can continue operations. Subchapter V under the Small Business Bankruptcy Reorganization Act has the potential to be a life preserving tool for businesses struggling in a COVID-19 world.

    If you have questions relating to Subchapter V of SBRA, the content of this article, or issues related to workers’ compensation, workplace safety, or employment law, Erin O’Leary would welcome the opportunity to talk with you.  Ms. O’Leary can be reached at (425) 644-6142 Ext. 108 or Erin@EmployerSolutionsLaw.com

    IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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