As critical COVID-19 aid expires, businesses will begin to suffer the true economic impact of the pandemic. Some small businesses may be eligible for national and regional assistance programs; others may involve third parties to invest, provide bridge financing, or acquire distressed assets in mutually beneficial agreements.
Without new capital, businesses have to address problems through debt restructuring transactions. Chapter 11 bankruptcy can place an improved capital structure on a business. In the real estate context, a debtor is empowered to assume or reject leases and contracts so the business can jettison unprofitable locations and enhance its leverage to improve terms on other locations. Chapter 11 can also allow businesses to reorganize payments that reflect current economic reality. This period can also present opportunities for acquisition and re-purposing; bankruptcy courts require the repurposing of assets to achieve the best value. Additionally, recent bipartisan legislation makes filing for bankruptcy in the U.S. more accessible to small business debtors.
In this article, Sidley lawyers discuss how, through this painful process, American business can re-grow on sounder footing.