Senators Hitting That PPP Pipe Hard.
Originally Published : May 6, 2020
MURDER HORNETS DESCEND ON D.C.!!!!!
Apparently, they come from all over the country. They are sharp-clawed, venomous and they have invaded the soft and honey rich environs of the hive housing the U.S. Senate. They are ripping the heads off our Mnain Mnan and SBA Chief Carranza and anyone else connected with the current PPP program.
There has been a frenzy of activity today denouncing the current PPP program and its host of problems. It almost feels like these killer Senators have been listening to us. They are calling out the hospitality industry as the leading example of why the current program needs to be rejiggered. Then, they are also saying that PPP stinks and let’s come up with a new and improved version.
Senators Michael Bennet the D from Colorado and Todd Young the R from Indiana, a bipartisan blue and red dynamic duo, announced a joint proposal to change the PPP. Their proposal also included a new loan program called RESTART, (already an improvement) aimed to be cash to businesses in the form of a loan with a forgiveness element that would cover six months of expenses, not just two. Forgiveness would be based on on revenue decline. There are many other details but those are the broad strokes.
Not be outdone by his in-state D enemy, Corey Gardner, the R from Colorado, also introduced a letter with PPP reforms to Queen Bee McConnell who is being very, very stingy and just wants to confirm a crazy judge and go back home and be a bad boy with his bourbon spiked sweet tea. Meanwhile, Senators Scott and Johnson, both R’s, are also getting into the fray by calling for PPP overhauls and new initiatives. So, there is action in the hive and we will be watching to see what turns into honey and who gets their heads ripped off (Those murder hornet videos have really gotten to me).
Many of you have reached out to talk about what’s involved in bankruptcy. Another arrow in the quiver as we navigate through the dark times. It’s just good to know about this stuff so you can see the entire landscape and make good decisions. So, here’s Alanna Morgan, our bankruptcy attorney, to answer some of your questions.
Bankruptcy Q & A by Alanna Morgan
Alanna here, back to discuss bankruptcy. I know, I know, you were hoping I wouldn’t show up again throwing around the “b” word. But I’ll repeat what I told you before: don’t be afraid of the “b” word, and don’t be afraid of me! (I’m a little sensitive right now, aren’t we all?)
Today, I’m going to answer some of the common questions I get from clients—and I hope they address some of the questions you might have had recently, too.
Does filing bankruptcy mean I must close my business?
No. It’s your choice whether you want to use bankruptcy to try and save your business or whether you want to use it to close your business. There are different types of bankruptcies available to businesses. One type (a Chapter 7) is used to liquidate a closed business. Other types, primarily a Chapter 11, are used to reorganize your business’s debt so that it can keep operating. An individual business owner may also need a related personal bankruptcy if the business files Chapter 11, because the business and personal debts are often intertwined. So meeting with a “bankruptcy attorney” is useful regardless of whether you want to shut down or to keep operating. It’s also useful simply to gather information, to learn about your options, and to help you reach a decision as to how you want to move forward.
I’m going to say this one again: Filing for bankruptcy does NOT (necessarily) mean you are closing your business. Bankruptcy can also be used to SAVE your business.
How does a Chapter 11 allow me to keep operating my business?
In a Chapter 11, you submit a Plan of Reorganization. The Plan outlines, generally, your projected income and expenses over a period of time and proposes a payment schedule on that past debt over the same period of time. It might propose full repayment, if what you need is time to generate the income to repay. Or it might propose to pay a percentage of what you owe on certain past debt. It allows you to deal with all of your creditors in one, streamlined process, so that you can take a cohesive approach to negotiating with your creditors and paying down what is owed. Your creditors—who have been divided into similar groups called “classes”—then vote to accept your plan or to reject your plan.
If some of my creditors vote against my plan, can I still succeed in Chapter 11?
I don’t want to overwhelm you with details, so let’s stick with the short answer: yes. Here’s a slightly longer answer: In Chapter 11, even if your plan is rejected, there may be a way to “confirm” your plan if you can get just one class of creditors to accept it. In something called a Subchapter 5, which is similar to Chapter 11 but is available to small businesses, there may be a way to force your creditors to accept a plan even if all your creditors reject it.
Why might a creditor vote to accept a plan that proposes to pay it less than it is owed?
There are a number of reasons a creditor might do this. One common reason is that your business is worth more to a creditor if it can keep operating. Take a vendor: let’s say you have a couple pre COVID outstanding invoices, but if you open up again, you’d use that same vendor in the future. It might be in the vendor’s interest to take 20 cents on the dollar on the past invoices in order to allow you to keep operating and purchasing from them in the future. Or maybe you simply don’t have enough assets to get all of your creditors paid even if you were to close your business. 20 cents on the dollar may look pretty good to a creditor that would otherwise not get paid at all. And this isn’t in the law, but if you’ve been a good customer, your creditors may vote in favor of your plan simply because they want to help you. Those long-standing relationships can work in your favor in bankruptcy.
When is the right time to consult with a bankruptcy attorney?
Now. I can answer that question with more confidence than under ordinary circumstances because the world is weird right now and there’s a commonality to your experiences. The sooner you consult with a bankruptcy attorney, the better. Consulting with me does NOT mean you are ready to file bankruptcy. Consulting with me does NOT mean I am going to tell you to file bankruptcy. I mentioned this in an earlier newsletter, but I want to reiterate: I am not “only” a “bankruptcy” attorney. I work with businesses in and out of court, and I meet with clients all the time, whom I either tell not to file for bankruptcy at all, or whom I tell not to file bankruptcy yet.
Then why is it important to meet now?
One reason is the old saying “hope for the best, prepare for the worst.” The exceptional team at HL can continue what they’re already doing for you: helping you with your PPP applications, negotiating with your creditors, representing you in court, etc. In the meantime, I can work with you to prepare for the possibility of bankruptcy, so that if we decide that you need to file and that it’s the right time to file, you’re ready to go. Maybe we won’t ever need to. Maybe HL will be successful in convincing your landlord that it isn’t going to find another tenant as good as you were, and won’t it please abate your rent? But in case they aren’t, you’ll be ready with your backup plan. Moreover, preparing to file for bankruptcy is time consuming. It requires gathering a lot of information, filling out paperwork, and making sure that paperwork is accurate. The more time we have to work on that, the better. Again, HL and I will work together, and simultaneously—it’s not an either/or.
Speaking of my pesky landlord, can I use bankruptcy to negotiate with my landlord?
This is another complicated one that I’m going to keep simple for now: Landlords are given certain special protections in Chapter 11 that aren’t afforded to all other types of creditors because the relationship is ongoing. However, Chapter 11 can still be a useful tool in attempting to reorganize the debt you have from your lease and does provide a mechanism to get more time to pay your landlord any past due rent.
Should I be paying my creditors right now?
Answering this question is another way I can be more useful to you now than later. I can help you decide which creditors to pay and when based on your fact-specific goals. Within the bankruptcy context, one general rule applies. Don’t pay old invoices. There are a few reasons for this. First, if you pay a creditor’s invoice, you may not be doing that creditor a favor because you may ultimately have to sue it in bankruptcy to get the money returned. Second, you should be conserving cash. You need money both to run your business after the bankruptcy is filed, and also (without being self interested) to pay your attorneys to fight for you and get you to the other side of this crisis.
If I’ve decided that I DO want to close down my business, do I have to file for bankruptcy?
No. Whether I recommend filing for bankruptcy or letting HL try to resolve your problems outside of bankruptcy depends on a number of factors: how many creditors you have, how big your debt is, what assets you have, what other income you have, and your credit needs, among others. Again, meeting with me does not mean I am going to tell you to file for bankruptcy—and that includes clients that have decided to shut their doors.
If I don’t think bankruptcy is for me, why would I want to consult with a bankruptcy attorney?
There’s that saying: “You don’t know what you don’t know.” I’m more useful to you if we talk now, even if you’re not convinced bankruptcy is the right fit. (Again—neither am I!) Don’t wait until your landlord is padlocking your restaurant to ask me, “what should I do?” By the time that happens, your options are more limited than they are today. While the world is never stagnant, we’re living in a world where things are changing at a faster pace than normal. There are stimulus bills and city council bills that may or may not be passed. There are landlords that may or may not see the light. There are antiviral drugs and vaccines and testing that may or may not help us fight this thing. In a crisis with so many moving parts, you need an equally multi-faceted defense team. HL is out there on the front lines. But consulting with me about bankruptcy allows me to suit up and be ready and able to go to battle for you if you need me.
As a reminder: Available to all HL clients is a new “bankruptcy consult” package. This package will be offered at a flat fee of $750 and will include an initial consultation, a careful review of your financial picture, and a follow up consultation based on you and your business’s specific asset, income, and debt structure. Together, the objective is to come up with a strategy moving forward that meets your goals and needs within the economic realities of your business.
We need a miracle every day.