July 29, 2020

Chapter 11 Reorganization: What Every Business Should Know

In addition, executive orders, an easing of regulations and internal creditor policies resulted in a national forbearance period. Generally, creditors and lenders have not taken action to collect debt, evict, or enforce their lien rights.

While the pandemic and economic strife show no signs of subsiding, the forbearance period may end soon. Executive orders delaying evictions and extending deadlines to file responses to complaints are expiring. At some point, lenders and creditors will again take action to enforce their remedies and collect debt.

Some businesses may need to consider a Chapter 11 filing to stave off aggressive creditor action. Chapter 11 can be a useful tool for businesses that were healthy prior to the COVID-19 pandemic, and require some time to get their financial house in order.

Here are some key facts regarding Chapter 11 that all businesses need to know:
  1. Automatic Stay: Chapter 11 imposes a stay against creditor collection or enforcement of remedies by a lender. A potential foreclosure sale or seizure of funds is stayed upon the filing of a bankruptcy petition.
  2. Who Runs the Show? Management prior to a bankruptcy filing typically stays in place during the Chapter 11 process.
  3. The Breathing Spell: Chapter 11 provides a breathing spell for a company. Creditors generally cannot take action to collect debts. A business has between 90 and 120 days to file a plan of reorganization to repay creditors.
  4. Discharge of Debt: A business may file a plan that restructures its balance sheet by eliminating or discharging debt. A business may seek approval of a plan that stretches out payments to creditors over several years.
  5. SBRA: The recently enacted Small Business Reorganization Act permits a small business with no more than $7.5 million in debt to pursue a streamlined, less expensive bankruptcy process. This Act also increases the chances that ownership may retain its equity in the business after bankruptcy. More information regarding SBRA may be found HERE and HERE.

If you have questions relating to this article or other bankruptcy law matters, please contact a Kerr Russell bankruptcy and restructuring attorney.

Jason W. Bank is the chair of the firm’s Bankruptcy and Restructuring department. He focuses his practice in the areas of commercial bankruptcy, out-of-court workouts, corporate restructuring and creditors’ rights. Jason has successfully guided numerous businesses through out-of-court restructurings and Chapter 11 reorganizations. He has negotiated resolutions of complex financial issues and debtor-creditor disputes and achieved consensual restructurings while avoiding bankruptcy or litigation.

 

 

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