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CARES Act Expands Bankruptcy Options for Individuals and Small Businesses

Client Alert

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.


Valley National Bank/Trulieve Loan: A Big Step Out of the Shadows

In a late December press release, Trulieve announced that it had secured a $71.5 million commercial bank loan. In addition to the amount of the loan, which may be the largest commercial bank loan to date to a cannabis company, the release prominently identified Valley Bank and featured both a quote from Valley’s Senior Vice President, John Myers, and a description of the Bank’s service platform and commitment to the cannabis industry.

The End of Non-Competes? The Impact It Will Have on the Healthcare Industry

On January 5, 2023, the Federal Trade Commission (“FTC”) announced a proposed rule that, if enacted, will ban employers from entering into non-compete clauses with workers (the “Rule”), and the Rule would void existing non-compete agreements. In their Notice, the FTC stated that if the Rule were to go into effect, they estimate the overall earnings of employees in the United States could increase by $250 billion to $296 billion per year. The Rule would also require employers to rescind non-competes that they had already entered into with their workers. For purposes of the Rule, the FTC has defined “worker” to also include any employees, interns, volunteers, and contractors.”

2022 Healthcare Recap and 2023 Healthcare Check-Up

As the country begins to return to a new “normal” following the COVID-19 pandemic, there are many healthcare rules changing on both the federal and state levels as a result. Thus, it is important for healthcare providers and their employers to be aware of these changing rules, and any implications they may have on their practice. Look back on healthcare in 2022 and find a checklist for 2023.

Direct Support Professional Retention Payments

On December 15, the Ohio Senate and House passed House Bill 45, which authorizes the Department of Developmental Disabilities (DODD), in conjunction with the county boards of developmental disabilities, to launch their initiative to issue retention payments to Direct Support Professionals (DSPs). These retention payments will be distributed quarterly to participating home and community-based waiver providers to address the workforce crisis in the direct provider sector. Governor DeWine needs to sign the Bill to begin the payments, but he is expected to do so by the end of 2022.

Real Estate Investors Position for 2023 Opportunities

Real estate investors weathered another year in a post-pandemic world, with the year closing with yet another interest rate increase coupled with both uncertainty and heightened interest carrying into 2023. Just last Wednesday, the Federal Reserve raised its benchmark interest rate 0.50 percentage points, shifting the target range to 4.25% to 4.50%. The new level is the highest the fed funds rate has been since December 2007 and marks the seventh rate hike this year. So what does this mean to investors, brokers, lenders, and others in the real estate world? Read a few perspectives below from stakeholders familiar with our BMD clients and the markets in which they do business.