RI Court Offers Recovery Program for Businesses Impacted by COVID-19April 24, 2020
Has your business suffered adverse impacts from the coronavirus pandemic? If so, you’ll want to check out the business recovery program and small business reorganization act. Here’s why.
We know that operating your business during these unprecedented times is challenging and uncertain, but we want to make sure your business continues to prosper. The RI Court and RI Bar have collaborated and set up a recovery program that can help your business move forward. We can help you navigate the new program and help you build a plan that ensures your business stays afloat. You’ll also want to check out the Small Business Recovery Act of 2019. We delve into the details of both programs below.
What is the recovery program?
The COVID-19 Receivership Program seeks to provide Court supervision and protection, by and through injunctive relief, in the form of a Non-Liquidating Receivership Order to enable those entities to resume and/or continue operations in accord with a Court-approved Operating Plan.
In order to qualify, your business (all business entities as defined by RI law including sole proprietorships and nonprofits):
- Must have been paying debts prior to January 15, 2020
- Must have endured economic loss due to COVID-19- some guidelines include at least 20% reduction in revenue
How does the program work?
The program is meant to be implemented alongside other relief programs (EIDL, PPP) so that businesses have the proper time to recover. Eligible businesses can file a petition with the Superior Court and will be assigned to the business calendar. Here’s what the process looks like:
- A “receiver” or non-liquidating fiduciary is appointed who does not operate the business. The receiver works with you to develop a business plan, assists in development of operating plan working with advisors and professionals, notifies creditors and claimants, works through objections, comments and recommendations to the plan, and seeks court approval of plan. The receiver/courts would support your efforts on how best to structure the framework and act as a liaison/mediary so that you do not have to do it on your own.
- Develop a recovery plan- The plan will address how to manage debts incurred during the normal course of business while under the plan, how to pay pre-petition debts, what administrative expenses the plan will entail.
- Implement an exit plan- This will address how your business will resume normal operations and remove Non Liquidating Receivership (NLR).
- Await approval of creditors- Keep in mind that courts do not have the ability to discharge debt. Through their approval, you will have the opportunity to obtain new credit, fund working capital and re-establish existing terms.
Management continues to operate the business and work collaboratively with the Receiver to achieve the objectives of the plan.
What is the Small Business Reorganization Act of 2019?
This is another tool to help small businesses get back on their feet.
Small business debtors who are considering chapter 11 bankruptcy protection have continued to struggle with effective reorganization.
In response, the President signed the Small Business Reorganization Act of 2019 into law last August. The Act intends to make small business bankruptcies faster and less expensive. The Act stipulates that businesses can reorganize under Chapter 11 instead of filing for liquidation.
Since many small business debtors are limited in size and financial resources, they have not been able to benefit from Chapter 11 reorganization. The Act attempts to remove many of these obstacles, along with the cost of Chapter 11 bankruptcy to allow for successful small business reorganizations. The Act takes effect in February 2020.
The CARES Act modifies the Small Business Reorganization Act (SBRA) and greatly expands the restructuring options available to businesses with less than $7.5 million in debt through March 27, 2021. It is effective immediately. Previously, only businesses with up to $2.7 million in debt could use the SBRA’s expedited provisions.
KLR can help with developing the operating plan for your business, and help you navigate the Small Business Reorganization Act. We’re always here to help. Contact us today! Visit our Coronavirus Resource Center for the latest COVID-19 info.