March 28, 2020 – This afternoon, the U.S. government passed a $2 trillion relief package, the CARES Act, to help the economy in response to the COVID-19 crisis. This new legislation brings significant options for struggling small businesses.
In addition to the loan program that will infuse cash into stressed businesses, the act’s provisions safeguard money received from the stimulus package from needing to be used to cover past debts in a bankruptcy filing. But more significantly, the CARES Act authorizes the temporary expansion of the Small Business Reorganization Act (SBRA), which helped to streamline the bankruptcy process in February, and now temporarily increases the debt limit for small business Chapter 11 filings from $2.7 million to $7.5 million.
“This is a big step in the right direction, said Bob Charbonneau, founding partner at Agentis. “The adjustments that are now being made to the Small Business Reorganization Act make it a much more powerful statute in that more small businesses will be eligible to seek Chapter 11 bankruptcy protection, reorganize, and emerge on the other side – which in the past, has largely been essentially only an option for large businesses.”
The increase in the debt limit would be for a period of one year and would only apply to Chapter 11 cases filed after the CARES Act is enacted.
“The work from home and social distancing orders, in effect almost everywhere in the United States, have impacted businesses of all types. It’s not just retail outlets that have seen a drop in income. Businesses of all types have seen existing projects put on hold, a freeze on new work in the pipeline and customers who can’t afford to pay their bills,” Charbonneau said.
“Many of them will be forced to seek Chapter 11 protection, and the CARES Act provides relief for many businesses that didn’t qualify under the SBRA’s debt limit of $2.7 million.”
Agentis will be sure to keep you informed as the law evolves to address the current situation.