• 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 federal government made bankruptcy a viable option for small businesses with the passage of the Small Business Reorganization Act of 2019 (SBRA). The act, which became effective Feb. 19, is designed for smaller businesses that cannot afford the high administrative fees and costs associated with traditional Chapter 11 reorganizations.

Barely a month after Bankruptcy Code amendments providing a cheaper, more efficient path to chapter 11 relief for small businesses took effect under the Small Business Reorganization Act of 2019 (“SBRA”), Congress has nearly tripled the debt-eligibility threshold from roughly $2.7 to $7.5 million in response to economic fallout from the COVID-19 shutdown.

On February 19, the Small Business Restructuring Act (SBRA) — the most significant change to the Bankruptcy Code in 15 years — went into effect. The SBRA, also known as Subchapter V of Chapter 11, removed numerous barriers that had long prevented small businesses from reorganizing in bankruptcy. On March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) went a step further and significantly expanded eligibility under Subchapter V by raising the debt limit from $2.7 million to $7.5 million. This overview answers key questions about how these new laws work.

State governments can be creditors of individuals, businesses and institutions that are debtors in bankruptcy in a variety of ways, most notably as tax and fine collectors but also as lenders. They can also be debtors of debtors, in their role, for example, as the purchasers of vast quantities of goods and services on credit. And they can also be transferees of a debtor’s property in (at least) every role in which they can be creditors.

As markets react to the Coronavirus Disease 2019 (COVID-19) pandemic, the trading prices of loans and notes have declined. In light of these developments, borrowers and their affiliates, including private equity sponsors, are considering whether to buy back outstanding debt at a discount. In analyzing the potential benefits and drawbacks of pursuing debt repurchases, borrowers and private equity sponsors should consider the following:

Outstanding Debt Documents

When Financial Stress Turns to Distress–Restructuring Tools to Avoid Disaster

Parts 1 and 2: Chapter 11 Checklist and What Else Is in the Toolbox

On March 27, Minnesota Gov. Tim Walz clarified that Executive Order 20-20, which directed Minnesota residents to stay at home, applies to debt collection professionals. Due to ongoing coronavirus (“COVID-19”) concerns, Executive Order 20-20, which will remain in effect until April 10, 2020, orders all persons living in the State of Minnesota to stay at home except to engage in exempted activities and critical sector work.

• The COVID-19 pandemic has shifted the underwriting analysis for suppliers and creditors from customer-specific financial review to global health and macroeconomic analyses that are outside of the comfort zone of most company credit managers.
• Credit managers have seen their customers in long-thriving industries (e.g., travel, hospitality, entertainment) face a sharp and sudden loss of revenue.