COVID-19 is taking an alarming and unfortunate toll on our country’s population. Each day, we collectively face daunting health risks, and the economic cost to individuals and businesses alike has already been, and will continue to be, staggering. Accordingly, more than at any point in the past decade, both debtors and creditors should consider the potential benefits of the bankruptcy process. This post discusses four basic bankruptcy concepts that always merit consideration, especially in these trying times.

• Committee selects legal counsel to recover debt
• Legal counsel oversees the day-to-day management of the case
• All committee expenses, including legal fees, are the responsibility of the bankruptcy estate

One of the many unfortunate realities of the current economic situation is the likelihood of a sharp uptick in bankruptcies in the oil and gas industry. As more mid-size and large businesses begin to file Chapter 11 bankruptcy you will likely hear more about unsecured creditor committees.

On February 19, 2020, the Small Business Reorganization Act went into effect. The purpose of the new law is to offer an alternative, more streamlined path in chapter 11 reorganizations for small business debtors (including sole proprietorships). When the new law was passed, the only small business debtors eligible to file were those having less than $2,725,625 in debt, at least 50% of which arose from business activities. The Coronavirus Stimulus Bill changed that by increasing the limit to $7.5 million.

The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act expands the application of the Small Business Reorganization Act of 2019 (SBRA) to more distressed businesses. The SBRA gives qualifying businesses and their owners more leverage to reorganize in bankruptcy court over the objection of creditors. The SBRA process is also less expensive and more streamlined than a typical Chapter 11 case.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) went into effect. While coverage of the CARES Act has focused primarily on tax relief and provisions to extend loans and other forms of assistance to impacted businesses and individuals, the law also temporarily expanded eligibility for companies seeking bankruptcy protection under the recently enacted Small Business Reorganization Act of 2019 (“SBRA”).

Small businesses have traditionally had difficulties reorganizing under Chapter 11 of the Bankruptcy Code. The legal fees necessary to prepare a plan and disclosure statement and navigate the confirmation process were often prohibitively expensive. Further, the reporting requirements and United States Trustee fees mandated by Chapter 11 added significant expenses to the already struggling debtor’s cash flow.

INTRODUCTION

In these difficult economic times, companies seeking additional liquidity may turn to alternative sources of financing. Companies with assets that can be monetized (e.g., accounts receivable, intellectual property, real estate, equipment, etc.) may discover a number of options available to them. In particular, accounts receivable financing may be an attractive way for certain companies to obtain working capital relatively quickly.

In Wells Fargo Bank, N.A., f/b/o Jerome Guyant, IRA v. Highland Construction Management Services, L.P. et al., Nos. 18-2450-52 (4th Cir. March 17, 2020), the Fourth Circuit Court of Appeals recently upheld that a borrower’s indirect economic interests in a limited liability company (LLC) were not assigned to a lender under a conveyance in a security agreement assigning mere membership interests, pursuant to Virginia state law.

Facts

On April 3, 2020, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) re-issued and extended General License No. 13E (“GL 13E”) to continue the validity period for transactions concerning Nynas AB and its subsidiaries (“Nynas”) that otherwise would be prohibited under Executive Order 13850 or Executive Order 13884 given Nynas’s 50% indirect ownership by Petróleos de Venezuela S.A. (“PdVSA”).