Reluctant to Restructure: Small Businesses, the SBRA, and COVID-19
95 American Bankruptcy Law Journal 389 (2021)
55 Pages Posted: 29 Apr 2021 Last revised: 13 Feb 2023
Date Written: April 28, 2021
Abstract
The global pandemic sparked by the proliferation of the COVID-19 virus created an economic crisis of an unprecedented nature in the United States, particularly among small businesses. Many of these small businesses were required by law or circumstances to temporarily close, limit hours or capacity, and/or invest in expensive measures intended to protect the safety of their patrons. The financial consequences of these protective measures were devastating. Fortunately, the law seemed primed for just such a crisis. Mere weeks prior to the national shutdowns caused by the virus, a new bankruptcy law intended to facilitate the reorganization of small businesses went into effect. The Small Business Reorganization Act of 2019 created subchapter V of Chapter 11, which permitted small businesses to reorganize with greater speed and less cost than ever before. In response to the COVID-19 crisis, Congress expanded the use of this provision to a larger number of businesses. However, despite the apparent advantages presented by the bankruptcy law and the economic devastation caused by the pandemic, small businesses declined to file for bankruptcy. Although it is too early to draw definitive conclusions as to why, evidence suggests that small business owners see bankruptcy as a tool of “last resort,” which may neuter the ability of bankruptcy laws to preserve value as intended pursuant to broader bankruptcy policy.
Keywords: bankruptcy, SBRA, small business, COVID-19, pandemic, reorganization
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