Balance has been tipping over from creditors to shareholders and the pandemic is only bringing this deepening fault line to the fore.
Covid-19 slammed into the global consciousness this March and, as expected, immediately torpedoed the markets.
But despite the worsening economic data hogging news headlines, exacerbated by intensifying US-China tensions, the markets have paradoxically strengthened since. The S&P 500 has rebounded by more than 30 per cent since its March nadir, breaching its five-year pre-Covid-19 high.
One question often asked of bankruptcy lawyers is, “what happens to my personal guarantee of business debt if my business files for bankruptcy?” Generally, the response has been that the guarantor is personally liable for a guarantee of the business debt. The creditor will seek repayment of the guarantee from the individual if the business files for bankruptcy or closes its doors.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Small Business Reorganization Act of 2019 (SBRA) provide useful options for small business debtors (i.e. those whose debts are less than $7.5 million) considering Chapter 11 bankruptcy protection. However, to reap the benefits of these Acts, small business debtors may need to act quickly, as some of the key benefits of the CARES Act are scheduled to sunset on March 27, 2021.
The Situation in Hong Kong
COVID-19 has created unforeseen challenges to businesses all over the world, resulting in many companies being unable to survive the pandemic. Hong Kong has been no exception. In Hong Kong, according to data published by the Hong Kong Government’s Official Receiver’s Office, in the first seven months of the year, 5219 compulsory bankruptcy petitions and 247 compulsory winding-up petitions were presented, representing 13.7% and 5.1% year-on-year increase respectively. The effect of COVID-19 may yet be fully reflected by these figures.
The Small Business Administration (SBA) has consistently applied its traditional small business lending qualification criteria to Paycheck Protection Program (PPP) loans — likely because the CARES Act grafted the PPP onto the SBA’s Section 7(a) loan program. But the CARES Act also contemplated that the purpose of the PPP was different from traditional SBA lending programs; the PPP is part economic stimulus and part inducement for businesses to continue to pay employees, landlords and banks notwithstanding the fear that COVID-19 would bring them economic hardship.
30 March – 5 April 2020 COVID-19 Weekly Report | 06/04/2020 © Copyright LBR 2020 2 Table of contents 1. Executive summary............................................................................................................................................ 3 2. Key legal issues this week ................................................................................................................................. 4 3. Recent developments ........................................................................................................................................ 5 4.
The amendments of the Response Act are temporary and will apply for six months until September 23, 2020. However, subject to economic and health developments, the provisions may be expanded in both their application and scope
On March 27, 2020, President Donald Trump signed into law the third major coronavirus-related legislation in the last several weeks – the Coronavirus Aid, Relief, and Economic Security (CARES) Act – in response to the pandemic and resulting economic crisis. The CARES Act includes substantial federal spending and loan commitments that will benefit individuals and businesses.
Unprecedented times call for unprecedented solutions. This has never been more true than now as our world struggles through impactful changes to our lives, both at work and at play, as a direct result of the COVID-19 pandemic. As social distancing, stay-at-home orders, and sheltering-in-place have forced the closing of shopping centers and retail stores, bars and restaurants, movie theaters, and other venues, “business as usual” has largely, but hopefully only temporarily, ground to a halt.
To make reorganization under Chapter 11 more accessible and cost-effective for small businesses, Congress passed the Small Business Reorganization Act of 2019 (“SBRA”). The SBRA took effect on February 19, 2020, immediately prior to the world wide spread of COVID-19, the resulting stay at home orders, shuttering of businesses and unprecedented economic fallout.