As bad as things may be right now for your business, please do not ignore opportunities that may exist to implement a strategic business restructuring during the current pandemic. Your business may have existing retail or restaurant business locations that were struggling, even before the COVID-19 pandemic began. These “bad locations” could be dragging down your overall company performance – and endangering the viability of the “good stores.”

You may have a “bad lease” that you inherited when you bought the company, whose rent burden far exceeds the current sales potential of the troubled store. Your lease at your primary office, warehouse or factory where you operate, may now require rent or mortgage payments that you may not ever be able to afford again. You may already be behind in your mortgage, and unable to make a payment this month.

Despite these difficult circumstances amid COVID-19, there is hope. Landlords, lenders and tenants alike are all now aware that a “new reality” has dawned. Yes, a “default” is still a “default.” Leases and mortgages are still enforceable. Landlords can still evict, and lenders can still foreclose (likely with significant delays, until courts are fully open).

However, landlords and lenders are at their core “business people,” not lawyers, and these issues are really business issues, not purely legal issues. Even if a landlord successfully evicts a tenant and obtains a default judgment for lost rent, the landlord still will then have to try to collect from a (now permanently-closed) tenant. In addition, the landlord will then have to try to re-market the space, at a time when lots of other space is becoming available, with few new businesses being started. There will be a lot of commercial space available for rent later this year.

The business restructuring lawyers at Earp Cohn P.C. are experienced at helping your business successfully renegotiate its leases, mortgages and other contracts. “Restructuring” most often occurs outside of bankruptcy, through good faith negotiations with landlords, lenders and other creditors. We can lead that negotiation process for you.

If appropriate (or unavoidable), we are also experienced at helping your company successfully file a strategic Chapter 11 Bankruptcy reorganization, and to help you to construct a Bankruptcy Plan that will work. We will then help your company emerge from bankruptcy financially stronger and viable.

In addition, recent changes in Bankruptcy Law have made it easier for smaller companies to enter bankruptcy, and to then successfully emerge from bankruptcy financially stronger. The Small Business Reorganization Act (“SBRA”) just went into effect (February 2020), right before the COVID-19 pandemic hit. The goal of the SBRA was to make small business bankruptcies faster, less expensive and more readily available to smaller businesses.

Some key features of the SBRA include:

a. Companies with debts up to $2.7 Million can now qualify to file under the new streamlined SBRA processes;

b. A “trustee” is appointed, and the trustee will, as needed, help the debtor formulate a consensual plan. Despite the involvement of the trustee, SBRA debtors are not responsible for payment of traditional trustee fees.

c. There are no creditors’ committees (unless ordered by the court).

d. Only the debtor is permitted to file a plan under the SBRA.

e. No very detailed and expensive to produce “Disclosure Statement” is required; which is often very difficult and expensive for the debtor to prepare. Instead, the debtor provides a brief history of operations, a liquidation analysis, and a projection of the debtor’s ability to make payments as per the Plan.

f. Perhaps most importantly to small businesses, the new SBRA eliminates the traditional Chapter 11 “absolute priority rule,” which (in larger cases) prohibits “lower classes of creditors” (such as business owners) from retaining ownership or receiving a distribution, unless the claims of other “higher ranked” creditors are paid in full. The SBRA now permits business owners to propose plans in which they retain ownership, even without contributing “new value” (such as new cash), into the company. This is a huge, beneficial change for small business owners seeking to reorganize.

g. There is no longer a bankruptcy “stigma.” Bad things happen to good people and good companies, especially during a pandemic.

Perhaps the most important thing you can do, is to not try to do this alone. At Earp Cohn P.C., we are not ordinary “business lawyers” – we have lawyers who have actually run businesses. We serve as strategic counsel to our clients on a daily basis – manufacturing companies, retailers, restaurant and hotel groups, entertainment companies, real estate developers, tech companies and many others. We assist you in navigating the legal complexities of the rapidly-changing business landscape.

We bring unique expertise and experience to help you successfully navigate the restructuring opportunities that may exist – both outside bankruptcy and if necessary with the help of the Bankruptcy Court. We will become a trusted and essential resource for your company.

Please contact Donald A. Nogowski, Esq., for a free, no obligation initial consultation.  Email: dnogowski@earpcohn.com; Phone: 856-354-7700