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CARES Act Expands Bankruptcy Options for Individuals and Small Businesses (1)

The Coronavirus Aid, Relief and Economic Security (CARES) Act provides a $2 trillion economic stimulus for US companies and citizens faced with the challenges of the COVID-19 coronavirus. The CARES Act also significantly expands existing bankruptcy options for small businesses by temporarily increasing certain debt limits set forth in the recently effective Small Business Reorganization Act of 2019 (SBRA).

Small Business Reorganization Act of 2019 (SBRA)

In August of 2019, President Trump signed into law the Small Business Reorganization Act of 2019 (SBRA) – a piece of legislation that gave small businesses a variety of benefits when filing for Chapter 11 bankruptcy.  Effective February 22, 2020, the SBRA offers small businesses with aggregate liabilities that do not exceed $2,725,625 the opportunity to resolve their outstanding debts and financial obligations through a more price-conscious and streamlined Chapter 11 process under a new subchapter V component of the Bankruptcy Code. In an attempt to minimize business liquidations, the SBRA will allow business owners to retain the equity in their business, while simultaneously providing more guidance and structure throughout the reorganization process at an affordable cost.  

The SBRA’s key provisions include: 

Simplifying the Process

Debtors now have 90 days to file their reorganization plan from the day in which they file their bankruptcy petition, with easier rules for extending their payment plans. The SBRA will also incorporate more lenient reorganization requirements. Aside from maintaining that all plans are “fair and equitable,” businesses now have two primary ways to repay their creditors: (1) the business, through its restructuring plan, will identify any “disposable income” (income not used to pay for a business’s necessary expenses) and how it plans on distributing this income to its creditors; or (2) the plan will lay out an outline of how a company intends on distributing some or all of its property, provided that it can demonstrate that such property “is not less” than the projected disposable income that would be paid to its creditors. In exchange for complying with one of these two plans, the SBRA permits business owners to maintain possession of their company.  

Extending the Payment Schedule & Debt Dismissal 

A small business’ debts are no longer required to be paid in full. Under the SBRA, business owners can now create a repayment schedule that can span anywhere from 3 to 5 years. By adhering to this payment schedule, business owners are permitted to maintain ownership of their companies. After complying with this 3- to 5-year creditor repayment plan, courts are required to discharge any remaining debt owed by the small business. 

Standing Trustee Appointment 

Similar to Chapter 13 personal bankruptcy filings, the SBRA establishes that once a small business files under the SBRA, a “standing trustee” will be appointed to oversee the case. Throughout the plan of reorganization payment period, the standing trustee will oversee the small business’ estate, which includes general business operations, reviewing the company’s financial condition, or possibly, reporting any fraud or misconduct to the court. The goal under the SBRA is that by appointing a standing trustee, small businesses will have an additional resource in ensuring that adherence to their reorganization plans. In addition, unless the court orders otherwise, no unsecured creditors’ committees are permitted to be appointed or otherwise oversee the case.

Coronavirus Aid, Relief and Economic Security (CARES) Act provisions related to expanding bankruptcy options for small businesses

Under the CARES Act enacted March 27, 2020, the debt limit under the SBRA for small businesses filing under the new subchapter V of chapter 11 of the Bankruptcy Code increases from $2,725,625 to $7.5M for a period of 1 year only. The debt limit would then decrease back to $2,725,625 after the one-year increase. For small businesses in financial distress with debts between this range ($2,725,625 - $7,500,000), a time-sensitive evaluation of bankruptcy options should be considered prior to the expiration of the expanded debt limit in March,2021.

The CARES Act also extends benefits to individuals in a bankruptcy. For individuals in a chapter 13 bankruptcy case that have a material financial hardship due to the coronavirus, bankruptcy plans can be expanded for up to 7 years. Further, the coronavirus financial assistance funds shall not be considered “income” for bankruptcy purposes.

For more information about the changes to the bankruptcy laws, please contact Michael Steel at (330) 374-7471 or masteel@bmdllc.com.

Provider Relief Funds – Continued Confusion Regarding Reporting Requirements and Lost Revenues

In Fall 2020, HHS issued multiple rounds of guidance and FAQs regarding the reporting requirements for the Provider Relief Funds, the most recently published notice being November 2, 2020 and December 11, 2020. Specifically, the reporting portal for the use of the funds in 2020 was scheduled to open on January 15, 2021. Although there was much speculation as to whether this would occur. And, as of the date of this article, the portal was not opened.

Ohio S.B. 310 Loosens Practice Barrier for Advanced Practice Providers

S.B. 310, signed by Ohio Governor DeWine and effective from December 29, 2020 until May 1, 2021, provides flexibility regarding the regulatorily mandated supervision and collaboration agreements for physician assistants, certified nurse-midwives, clinical nurse specialists and certified nurse practitioners working in a hospital or other health care facility. Originally drafted as a bill to distribute federal COVID funding to local subdivisions, the healthcare related provisions were added to help relieve some of the stresses hospitals and other healthcare facilities are facing during the COVID-19 pandemic.

HHS Issues Opinion Regarding Illegal Attempts by Drug Manufacturers to Deny 340B Discounts under Contract Pharmacy Arrangements

The federal 340B discount drug program is a safety net for many federally qualified health centers, disproportionate share hospitals, and other covered entities. This program allows these providers to obtain discount pricing on drugs which in turn allows the providers to better serve their patient populations and provide their patients with access to vital health care services. Over the years, the 340B program has undergone intense scrutiny, particularly by drug manufacturers who are required by federal law to provide the discounted pricing.

S.B. 263 Protects 340B Covered Entities from Predatory Practices in Ohio

Just before the end of calendar year 2020 and at the end of its two-year legislative session, the Ohio General Assembly passed Senate Bill 263, which prohibits insurance companies and pharmacy benefit managers (“PBMs”) from imposing on 340B Covered Entities discriminatory pricing and other contract terms. This is a win for safety net providers and the people they serve, as 340B savings are crucial to their ability to provide high quality, affordable programs and services to patients.

DOL Finalizes New Rule Regarding Independent Contractor Status, But Its Future Is In Jeopardy

On January 6, 2021, the Department of Labor announced its final rule regarding independent contractor status under the Fair Labor Standards Act. As described in a prior BMD client alert, this new rule was fast-tracked by the Trump administration after its proposal in September 2020. The new rule is set to take effect on March 8, 2021, and contains several key developments related to the "economic reality" test used to determine whether an individual is an independent contractor or an employee under the FLSA.