Pub. 1 2021 Issue 2

8 | The Show-Me Banker Magazine emerge, the government may address these concerns, but additional legislative reform is unlikely at the present time. 4. Is the need for bankruptcy relief being exacerbated by COVID-19? While the pandemic has certainly put an economic strain on many businesses, most notably those relying on the physical presence of customers, such as hospital- ity, restaurants, retail, and theaters, the unprecedented economic stimulus injected by the government in 2020 appears not only to have staved off any increase in com- mercial bankruptcies, but perhaps actu- ally decreased them, at least for the time being, relative to historical levels. Through November of last year, 30,310 commercial bankruptcies were filed in the U.S. Assum- ing a uniformmonthly pace of filings, that would result in approximately 33,065 filings for 2020. By comparison, in 2017, 2018 and 2019, there were 39,050, 38,044 and 38,536 commercial bankruptcies filed, respective- ly. 2 2020 did see an increase in Chapter 11 filings, with the largest amount of commer- cial cases filed (6,735 through November 2020) since 2012 (7,289 Chapter 11 cases). 3 Looking forward, both parties of govern- ment seem intent on extending additional stimulus as we move through 2021 in a continued effort to save businesses and jobs, and the vaccination efforts provide real reason to believe that COVID-related restrictions could be eased at some point this year. In view of those developments, there is optimism that COVID will not ulti- mately force significantly greater numbers of companies into bankruptcy than would have otherwise have filed without the im- pacts of COVID. That said, undoubtedly, there are many companies that 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 stimu- lus tapers off, these companies may need to consider bankruptcy. There also are businesses who 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 popular on a long-term basis to a 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 additional bankruptcies long after the COVID virus has been contained. 5. How might businesses po- sition 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 recovery quickly or more slowly once those restrictions are eased. Once the capital needs of a business are reasonably determined (understanding, of course, that uncertainty still exists re- garding 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 many small businesses, this will primarily be its lender. Businesses should engage in conversations with their lenders as early as possible. Most banks, thus far, with encouragement from government stimulus and a desire to maintain their relationships with their customers, have liberally granted their borrowers some form of payment deferral when requested. When justified, banks have also agreed to restructure long- term debt, understanding that the pandem- ic, while still causing immediate economic strain, will eventually come to an end. Look to your bank for advice. Some banks have become not only a source of credit to its customers but also a growing resource of business information, even offering classes and workshops covering topics such as finance, management and leadership, sales and marketing, human resources, and information technologies. Most banks will be able to provide their business custom- ers with the latest information regarding COVID-specific lending programs, such as the Paycheck Protection Program and Economic Injury Disaster Loans that were previously-enacted by Congress. Because the government appears committed to extending additional COVID-specific stim- ulus programs throughout 2021, forming a good relationship with your lender will position you well to take advantage of these programs as they become available. Business who are suffering from COVID-re- lated restrictions may also want to consider whether they can adapt their operations to help mitigate the impacts of COVID. Many businesses in the restaurant, retail and grocery industries have been successful in quickly implementing new delivery and curbside services. In some cases, these new services have been so successful, that business owners will likely want to consider continuing these services after the pan- demic is over. Unfortunately, business that have been sig- nificantly impacted by the pandemic may need to consider bankruptcy. In some cir- cumstances, this may mean winding down operations and liquidating, but 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. With regard to reorganizations, in 2019, Congress enacted the Small Business Reorganization Act of 2019, creating a faster and more efficient reorganization option for small business debtors. Originally, this option was available only to businesses with debt not exceeding $2,725,625, but 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 businesses 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 standard Chapter 11 bankruptcy, which was previ- ously the only option available for reorgani- zation. The goal of this new reorganization option is to allow more small businesses an opportunity to remain in operation. ■ 1 https://www.brookings.edu/wp-content/ uploads/2020/09/Greenwood-et-al-confer - ence-draft.pdf 2 https://www.abi.org/newsroom/bankrupt - cy-statistics 3 Id. Peter Riggs is a partner at Spencer Fane LLP in the firm’s Kansas City office. He is an experi - enced litigator and regulatory attorney that 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 7