Hello Hi,,
Five months into this pandemic, many of us seem to be finding our way in a new normal. In this new normal, though, some businesses are not yet at a point where they see a path to survival. Bills have piled up while revenue is down. Company clients are facing their own challenges. Payments are delayed and work is reduced or postponed. It is refreshing to see some businesses thriving as they find themselves counter cyclical to the crisis – think grocery stores, delivery services. Others found a path to pivot, such as those now making plexiglass partitions and disinfecting offices rather than just cleaning them. However, most of us are not basking in a successful pivot.
Despite your best efforts, if things are not coming together for your business, consider a very new and attractive modification to an old option that prior to COVID-19 was probably not something you would have ever considered-specifically, reorganization, also known as bankruptcy. In February 2020, prior to COVID-19, the bankruptcy rules were amended to make the process much faster and less expensive for small businesses. Legislation approved in 2019 and enacted in early 2020 set the debt limit for businesses that can use this new path at $2,725,625. When COVID-19 hit, the CARES act raised the debt limit to $7.5 million for filings through March 31, 2021. This will enable many more businesses to quickly restructure under this simpler path. Not only is it faster and cheaper, it eliminates the challenging creditor committee and enables a business owner who follows a court approved plan to retain ownership of their company.
If you are one of the thousands of business owners or leadership teams who have done everything you can, but the past due bills, leases, and debt obligations are keeping you from reorganizing under your new operating conditions, give a serious look at this provision. It is called SBRA (Small Business Recovery Act of 2019) – also known as Subchapter V under Chapter 11 Bankruptcy.
Again, it is fast and far less expensive than traditional bankruptcy. You must provide financial information along with a reasonable plan that you believe you can follow to the court within 90 days. There is no creditor committee. The plan does have to be approved by the court and you do have to use all calculated disposable income to retire obligations. Generally, acceptable plans are 3-5 years in duration and if you comply, you will be clear after that time and retain the ownership of your company.
Most of you have extensive time and effort wrapped up in your business. Your operation is viable, but not at the level you were running prior to the crisis. The debt load and obligations you are carrying were very well suited for your prior size, but are choking you now. It is going to take most of us some time to rebuild to pre-pandemic levels. You might be a family business with the desire to pass the firm to a second generation, or maybe you ARE the second generation. For all kinds of reasons, walking away, which is always an option, is not an acceptable one for you right now. If this sounds like you, give this program a look. Recent legislation has provided a really innovative solution to a very difficult dilemma.
The vcfo team is optimistic about this avenue for our clients who need it. I wish they had given it a new name as it is not really bankruptcy in the traditional sense. Many long-time entrepreneurs, business owners, and leadership teams look at the word ‘Bankruptcy’ as failure, and we need to step away from that thinking. Subchapter V is a court-approved restructuring tool that quickly and inexpensively positions a company to focus on what is in front of them rather than what is behind while retaining ownership of what they have built. When you think about where you will be in 3-5 years, I believe most of you would like to still be running your company, still owning your company, and looking forward rather than backward.
If you have someone on your team that can dig in on this, suggest that they do. If you don’t, please give us a call to learn more and see if you are a candidate for this relief. Our team can help you quickly build an achievable plan and outline what you can do with it to retire your past due and ongoing obligations. It may be the best call you have made since the pandemic started.
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For more information about the SBRA program, I suggest you read this blog post authored by one of our Consulting CFOs. If you are in the retail industry, you might find this example scenario helpful. For those in the restaurant business, this example can help you make sense of things.
The vcfo team wishes all of you good health and optimal outcomes.
Best Regards,
Ellen Wood, CEO
