This article was originally published on Law360.
The COVID-19 pandemic has caused, and continues to cause, massive humanitarian and economic upheaval with no clear end in sight. Borrowers are already scrambling to increase liquidity from their banks. Some will continue to operate openly, honestly, and in the best interests of the company and its stakeholders. Others will not.
As businesses of all sizes braces for the impact of COVID-19 over the next several months, and possibly years, the rise of bankruptcy filings is inevitable.
The impact on small businesses in particular is likely to be devastating. While you may be familiar with traditional filings under Chapter 11 of the Bankruptcy Code, you may be less familiar with the recently enacted Small Business Bankruptcy Reorganization Act (SBRA), which was expanded in light of the COVID-19 pandemic.
The Bottom Line
Two recent cases demonstrate the efficacy of existing restructuring regimes under Irish company law and more particularly that the Courts in Ireland are receptive and efficient in approving and implementing large multi-jurisdictional restructuring schemes.
Ballantyne – Scheme of Arrangement
Virtually every business—regardless of its size, nature (manufacturing, service, professional, tech) or particular industry—is currently suffering significant distress as a result of the unprecedented shutdown of huge portions of the U.S. (and global) economy. It is therefore clear that the number of businesses (and individuals) who will seek bankruptcy protection in the coming months will be enormous.
Many municipalities are facing strained budgets, or possibly worse, in light of severely reduced sales tax income and aggravated further by actions or inaction of the state legislature. It is difficult to predict with all the variables in play where municipalities’ revenues are going to be in the next six months or longer. This may result in a municipality being figuratively put “out of business.” If a municipality cannot pay its bills or bond obligations, there is a little known and seldom used provision in the Bankruptcy Code that should be explored — Chapter 9.
The COVID-19 pandemic and the drastic measures taken in an effort to mitigate its adverse impact have sent shock waves throughout the US and global financial systems. COVID-19 and measures including travel bans, shelter-in-place orders and widespread business closures have caused precipitous changes in customer spending and demand, supply chain disruptions, sharp declines in revenue and other operational challenges across a wide range of economic sectors. Businesses worldwide now confront unprecedented and mounting challenges and distress.
As the COVID-19 pandemic marches on, more homeowners than ever are seeking assistance from their lenders.
3 Questions Every Company Should Ask Now
Economic stimulus packages, like the CARES Act, will provide some financial relief for Americans reeling from the impacts of the coronavirus pandemic. Unfortunately, unscrupulous fraudsters will manipulate these financial lifelines and the instability that has taken hold of so many households. This means government investigators across all jurisdictions will be on high alert and more active than ever.
On April 24, the Small Business Administration published additional interim rules which clarified that the SBA would not allow Paycheck Protection Program (PPP) loans to be used for debtor in possession (DIP) funding by stating as follows: