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On Behalf of | Nov 16, 2020 | Guidance

New Subchapter V Saves Local Trucking Company

The case referred to above was filed shortly after the new law went into effect and was recently confirmed as a Consensual Plan resulting in cash flow savings of well over $7,500.00 per month which allows the family owned company to maintain necessary rolling stock and equipment; eliminate over $900,000.00 in secured and unsecured debt; maintains all employees and salaries; and provide opportunity for the Company to continue to grow and flourish in a period of very hard times for most small business owners.

In addition to reducing secured debt on equipment the company needed to continue operating, they were able to surrender rolling stock that was not usable thus further enhancing cash flow by eliminating debt service on the units surrendered. Thus another $200,000.00 in savings was added to the $600,000.00 saved from restructuring the equipment that was retained.

All creditors will share in the unsecured payout of the Plan which assures a minimum quarterly distribution over the next four and one-half years. Creditors are projected to receive more than double what they would receive in a straight liquidation. The Company, its employees, and its owners continue to operate and earn a living. And because Subchapter V eliminates the absolute priority rule, the owners retain control and ownership of the Company they have poured their lives into over the better part of a decade.

The Small Business Recovery Act (SBRA) became effective on February 19, 2020.  The Act (Subchapter V of Chapter 11) was developed especially to help small businesses and entrepreneurs reorganize without the cost usually associated with Chapter 11 bankruptcy filings by eliminating creditor’s committees; assuring confirmation by either consensual or non-consensual Court approved Plans; and even allows cram down of loans on a business owner’s homestead as long as the loan funds were used for business purposes.

Originally limited to debtors with no more than $2,735,625.00 of aggregate, non- contingent, liquidated, secured and unsecured debt. The CARES Act (resulting from the Coronavirus Pandemic) raised the limit to $7,500,000.00.  The expires next March. (For this reason alone, any small business that falls within these limits should at least find out if Subchapter V would benefit them.)

Debtors exclusively have 90 days from filing date to file a plan. This allows planning for the company’s future growth and survival. Just as important, the short time line helps to hold legal costs down, when compared to the regular Chapter 11 process.  Since there is no creditor’s committee, debtors are able to negotiate one on one, thus making the process more cooperative and less adversarial. This is because creditors and debtors know that the Court has absolute authority to confirm the case regardless of objections as long as it determines there is fair treatment to creditors and they will receive more than they would in a straight liquidation.

Case law is still evolving. Recently it was ruled that guarantees by owners and other guarantors fall within the Act. Flexibility, Cooperation, and creative solutions are key elements to success in any restructuring effort, especially where small business is concerned.  Under new Subchapter V, a debtor company or individual entrepreneur is only limited by the experience and creative thinking of the attorney working the case.

For more information on small business bankruptcy and debt settlement issues due to COVID-19 Coronavirus Pandemic in Florida, please contact Martin and St. Lucie county  Bankruptcy Attorney Jon L. Martin at (772) 419-0057.

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