Pub. 11 2021 Issue 1

10 www.azbankers.org to believe that COVID-related restrictions could be eased at some point this year. Be- cause of those developments, there is opti- mism that COVID will not ultimately force significantly greater numbers of companies into bankruptcy than would have otherwise filed without the impacts of COVID. That said, undoubtedly, many companies have merely survived the pandemic thus far and have depleted cash reserves and other capital to do so. Once that capital is spent and government stimulus tapers off, these companies may need to consid- er bankruptcy. There also are businesses that may not absorb the full impact of the pandemic for several years yet. For instance, if companies ultimately find work-from-home arrange - ments to be economical, effective and pop - ular on a long-term basis to the degree that allows them to reduce their office footprints, the office landlords may not feel the impact of that reduced demand until the leases begin to expire. And some businesses may never return to their pre-COVID revenues because their customers’ preferences may have changed during the pandemic, such as consumers who acquired a new-found preference for online delivery and curbside services, all of which could lead to addition- al bankruptcies long after the COVID virus has been contained. How might businesses position themselves for the best outcomes? Are there alternatives? Be proactive. Every business should eval- uate what it needs to sustain its operations through the end of the COVID-related restrictions. In connection with that, businesses will want to consider whether their industry is likely to recover quickly or more slowly once those restrictions are eased. Once the company’s capital needs are reasonably determined (understand- ing, of course, that uncertainty still exists regarding just how long it will be until those restrictions are eased and the economy returns to pre-COVID strength), it should identify its sources of potential capital. For Peter Riggs is a partner at Spencer Fane LLP in the firm’s Kansas City office. He is an experienced litigator and regulatory attorney who advises clients across the financial services industry in litigation, government and internal investigations, and bankruptcy and creditors’ rights matters. Kris Dekker is a partner at Spencer Fane LLP in the firm’s Kansas City office. He helps banks, financial institutions and other lenders of varying sizes close their transactions efficiently, representing them in all phases of lending. continued from page 9 many small businesses, this capital source will primarily be its lender. Businesses should engage in conversations with their lenders as early as possible. So far, gov- ernment stimulus and a desire to maintain customer relationships have encouraged most banks to be liberal when granting their borrowers some form of payment deferral when requested. When justified, banks have also agreed to restructure long-term debt, understanding that the pandemic will eventually come to an end while still causing immediate economic strain. Look to your bank for advice. Some banks have become a source of credit to their customers and a growing resource of business information, even offering classes and workshops covering finance, manage - ment and leadership, sales and marketing, human resources, and information tech- nologies. Most banks will provide their business customers with the latest informa- tion regarding COVID-specific lending pro - grams, such as the Paycheck Protection Pro- gram and Economic Injury Disaster Loans that were previously enacted by Congress. Because the government appears committed to extending additional COVID-specific stimulus programs throughout 2021, form- ing a good relationship with your lender will position you well to take advantage of these programs as they become available. Businesses that are suffering from COVID-related restrictions may also want to consider whether they can adapt their operations to help mitigate the impacts of COVID. Many companies in the restaurant, retail, and grocery industries have suc- cessfully implemented new delivery and curbside services. In some cases, these new services have been so successful that busi- ness owners will likely consider continuing these services after the pandemic is over. Unfortunately, businesses that the pan- demic has significantly impacted may need to consider bankruptcy. In some circumstances, this may mean winding down operations and liquidating. In other circumstances, this could mean reorgani- zation, which entails obtaining some form of debt relief but results in the business operation continuing rather than winding down. Concerning reorganizations, in 2019, Congress enacted the Small Business Reorganization Act of 2019, creating a fast - er and more efficient reorganization option for small business debtors. Originally, this option was available only to businesses with debt not exceeding $2,725,625. In reaction to the economic fallout from the COVID pandemic, Congress expanded this option, making it temporarily available through March 27, 2021, to businesses with debts up to $7,500,000. For small business- es in need of debt relief, reorganization under the Small Business Reorganization Act is a far more viable option from a cost and efficiency standpoint than the stan - dard Chapter 11 bankruptcy, which was previously the only option available for reorganization. This new reorganization option aims to allow more small businesses an opportunity to remain in operation. w 1 https://www.brookings.edu/wp-content/up- loads/2020/09/Greenwood-et-al-conference-draft.pdf 2 https://www.abi.org/newsroom/bankruptcy-statistics 3 Id.