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A little over one year ago, just as the country was heading
into a period of unprecedented turbulence caused by the COVID-19
pandemic, the Small Business Reorganization Act (SBRA) went into
effect on February 19, 2020. Before SBRA, struggling businesses
considering bankruptcy had two options: Chapter 7 or Chapter
11. SBRA provides an additional option to businesses seeking
to reorganize by adding Subchapter V to the Bankruptcy Code, which
affords small business debtors the option of pursuing Chapter 11
restructuring under laws and rules of (a) traditional
Chapter 11, or (b) Subchapter V.
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We previously informed you that if you are a small business
that needed to file bankruptcy to save your company, then you may
be able to take advantage of Subchapter V of Chapter 11 of the Bankruptcy
Code.
The new subsection, which took effect in February 2020, creates
a more streamlined and less expensive Chapter 11 reorganization
path for small business debtors. Under the law as originally
passed, to be eligible for Subchapter V, a debtor (whether an
entity or an individual) had to be engaged in commercial activity,
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Congress passed new, temporary bankruptcy relief measures late
last year that impact certain commercial landlords and tenants.
Among other things, the new legislation, which was signed into law
on Dec. 27, 2020: 1) extends commercial rent forbearance for
certain small business tenants experiencing material financial
hardship related to the COVID-19 pandemic, 2) lengthens the time
period for commercial tenants to assume or reject a commercial
lease, and 3) establishes protections for certain commercial
deferred rental payment agreements.
Extended Commercial Rent Forbearance
Description of Change: In general, a
commercial tenant in bankruptcy must pay its rental obligations as
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After the Paycheck Protection Program (the PPP ) was
established in The Coronavirus Aid, Relief, and Economic Security
Act (the “CARES Act”), enacted on March 27, 2020,
debtors in bankruptcy cases applied for PPP loans. The Small
Business Administration (the SBA”) opposed PPP loans
for debtors, and courts were split as to whether the SBA could
block debtors from qualifying for and receiving PPP loans. Then
Congress passed the Consolidated Appropriations Act, 2021 (Act)
(Pub. L. No. 116-260), which was signed into law on December 27,
2020 (the “CAA”). The CAA amends the United States
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Your business provided goods or services to another company.
Shortly thereafter, that company then files for bankruptcy, and
owes your business substantial sums of money. After the filing of
the bankruptcy action, you then receive a letter from counsel
demanding that your business return
all of the money the
debtor paid to you in the 90 days before it filed for
bankruptcy.
Can this really be true?
Unfortunately, it happens frequently. Under Section 547(b) of the Bankruptcy Code, a
debtor may avoid a transfer it paid to creditors, trade vendors,