Opportunities and Challenges for Small Businesses Under New Laws Enacted During the Pandemic
Zev Shechtman is a partner at Danning, Gill, Israel & Krasnoff, a boutique Los Angeles law firm specializing in business bankruptcy, insolvency and restructuring.
The COVID-19 pandemic has resulted in the most severe economic decline since the Great Depres-sion.1 News accounts have predicted a "tsunami" of bankruptcy filings.2 The increase in bankruptcy filings was not immediate, likely due to a combination of factors, including governmental financial interventions,3 societal shutdowns due to social distancing and governmental "stay at home" orders,4 the legal and practical inability of creditors to pursue collection,5 and a freeze of civil litigation.6 In fact, the number of bankruptcy filings in the United States dropped 39% from March to April 2020.7 However, from April through July 2020, many national retail and restaurant chains, including Pier 1 Imports, J Crew, JC Penney, Ann Taylor, Chuck E. Cheese, Souplantation, and CPK, among others, filed chapter 11 bankruptcy petitions. A number of travel-related businesses, most prominently Hertz Rental Cars, filed bankruptcy petitions during that same period. Although national business bankruptcy filings started trending up in May and June 2020, the factors mentioned above are likely still playing an important role in easing financial pressures on businesses and individuals.
This article focuses on two bankruptcy topics that have been featured in recent legislation and bankruptcy cases. This article starts by addressing recent amendments to the United States Bankruptcy Code8 utilized by small businesses seeking streamlined chapter 11 proceedings under the new subchapter V of the Bankruptcy Code. This article also addresses other statutory relief provided to debtors, for while Congress enacted revisions benefiting small business prior to the pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") signed into law March 27, 2020, expanded that relief.9 Specifically, the CARES Act expanded access to subchapter V. This article goes on to address some of the early judicial decisions regarding subchapter V.