On May 28, the Asian American Bar Association of New York (AABANY) co-sponsored “COVID-19: Relief for Small Businesses Webinar Series Part 2” as part of a series dedicated to helping small businesses mitigate financial losses in light of COVID-19. The presentation discussed the various economic relief packages passed under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), including the Payroll Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL), as well as how Chapter 11 bankruptcy and the Small Business Reorganization Act can help small businesses ensure long-term financial stability. The webinar featured William Hao, Counsel at Alston & Bird with extensive experience in bankruptcy, litigation, and out-of-court restructuring and Treasurer of the AABANY Board. The presentation was moderated by William K. Lee, an associate at Alston & Bird LLP and AABANY member.
The presentation began by addressing the various relief packages currently available to small business owners, specifically those regarding eligibility requirements and application information. Small businesses need to submit their payroll processing records, tax filings, Form 1099-MISC, and other supporting documentation to be eligible to receive the PPP principal loan. The loan amount will be the lesser of either $10 million or 2.5 times the average monthly payroll based on 2019 annual statistics. The deadline for PPP loans is June 30, 2020 but will likely be extended for the next round of funding. As for EIDLs, eligible small businesses must have suffered economic injury in connection with COVID-19 and have an acceptable credit history that demonstrates an ability to pay back loans. Businesses may receive a principal loan amount of up to $2.5 million that can only be used to pay for expenses the businesses would have paid for even if the disaster had not occurred with an interest rate of 3.75%.
The presentation also discussed how filing for Chapter 11 bankruptcy could help small businesses reduce debt, restructure certain obligations, and come out of bankruptcy a more financially stable company. Filing for Chapter 11 bankruptcy allows owners to retain ownership of their businesses by restructuring their internal operations and finances, while incentivizing creditors to negotiate a more favorable reorganization plan. However, heavy legal expenses and other administrative requirements have traditionally blocked smaller businesses from being able to file for Chapter 11 bankruptcy. Under the Small Business Reorganization Act, many of the barriers that have deterred small businesses from filing Chapter 11 bankruptcy have been removed by allowing small businesses to qualify as Subchapter V debtors. By filing under Subchapter V, small businesses would not need to incur the significant legal expenses associated with forming a creditors’ committee, paying the appointed trustee, and filing for a disclosure statement. In addition, the Small Business Administration has raised the aggregate noncontingent, liquidated debt limit from $2,725,625 to $7,500,000, and has expedited the process for filing Chapter 11 bankruptcy.
The discussion also provided guidance on the process of filing for Chapter 11 bankruptcy. Small business owners should seek out a lawyer to help prepare and file a petition along with other potential filings such as an initial affidavit. An automatic Subchapter V trustee is appointed upon filing the petition and will formulate a plan to address outstanding debts.
Debtors should also prepare for court appearances such as Section 341 meetings, during which creditors can come and ask questions regarding company finances and status conferences between all parties to discuss progress toward developing a restructuring plan. These plans must contain a brief history of the business operations of the debtor; an analysis of how much money the company is worth if all of its assets were immediately liquidated; a valuation of future profitability if the company was allowed to continue operating; and any relevant forms. Plans must also outline how to manage and pay various classes of claims and interests including administrative expenses, priority claims, secured claims, general unsecured claims, and equity interests. Secured creditors can be paid over time and can be paid at a potentially lower interest rate whereas unsecured creditors must complete repayment within five years and all income not allocated for the maintenance of the company and basic personal living expenses of the debtor will be applied to make payments. If the plan is mutually agreed upon by all parties, the debtor will pay regular installments to creditors and any liability for debts is waived upon confirmation of the plan. If the plan is nonconsensual, the appointed trustee will make regular payments on behalf of the debtor, and liability is waived upon the completion of payments.
We thank William Hao and William Lee at Alston & Bird for helping to organize this webinar series and for their demonstrated commitment to helping small business owners affected by COVID-19. To learn more about AABANY’s Commercial Bankruptcy & Restructuring Committee, visit https://www.aabany.org/page/353. For any specific details, please refer to the video above.
If any attorneys would like to volunteer with AABANY to assist small business owners adversely affected by COVID-19, please contact [email protected].