You probably think about it if you own a small company within the next few months. Unfortunately, the growing number of company closeouts – temporary or permanent– is one of the unavoidable results of the current Covid 19 crisis. We also had a long list of well-known, big corporations permanently shut down or file petitions under Chapter 11 for bankruptcy. Every day, the list gets longer. We also expect a significant number of small and medium-sized firms to apply in the coming months to Chapter 11. Landowners may start losing patience in past leases, tribunals may open up for expulsions, and other creditors normally lose patience in coping with their financial problems.
Recently, the New York Times has released an article on the anticipated bankruptcies of small companies. The article paid special attention in February of this year to the “Small Business Restructuring Act.” The new law aims to reduce the usually high costs for small businesses of reorganizing the process, also called ‘subchapter 5 bankruptcy. ‘In the beginning, the debt ceiling under the current subsection 5 was $2.72 million, but as part of the latest stimulus programs, Congress had increased the deficit to $7.5 million. This new debt cap greatly raises the amount for and benefiting from Subchapter 5 of the small enterprises.
If you have a small to medium-sized corporation with financial problems, you can now take a few steps in preparations for a future reorganization. The first move is a good corporate bankruptcy and reorganization lawyer in your city. Most attorneys will be able to talk to you and, if relevant, meet with you free of charge. It is necessary to talk to lawyers with substantial experience in corporate bankruptcy and reorganization cases rather than to lawyers who are very involved as a result of the crisis. Lawyers who advertise “no money down” TV cases will do fine work with personal bankruptcies but usually are not concerned with business cases.
A lawyer typically asks one of the first questions for a short description of his current debts so that it is always useful to get this detail. The total volume and status of the secured liabilities such as banks or immovable loans, rental commitments, unsecured credit card debt, or commercial debt, which is owed to key providers. This is also a good time to record any company debts personal to the owner.
What you shouldn’t do is wait for a real emergency, like an expulsion suit, the main supplier cut, or employee salaries and taxes get behind. Contacting a lawyer earlier than later is no assurance that a small business can succeed, but preparation is much more likely to do so in advance.