With upcoming changes to the procedures for “small business” Chapter 11 filings we expect more Chapter 11 filings for individuals and for businesses who qualify as “small businesses” under the new sub-chapter of the bankruptcy code. Let’s talk about the businesses today.
Businesses with less than $2.7 million of debt could proceed, starting in mid-February, under a new section of Chapter 11 designed to streamline small businesses and confirm plans quicker and at least expense to debtors. Business owners know they can’t be viable if they are in bankruptcy for months at a time, with creditors, vendors, and employees all concerned about the uncertain future. And the costs of Chapter 11 bankruptcy are a major reason why people are hesitant to try and save their businesses. A shorter reorganization should mean more businesses that restructure their debts and emerge as leaner and meaner, ready to remain in business. That would benefit the owners, employees, and all parties involved.
The “how” in the process is a bit complicated if you’ve never experienced a Chapter 11 case before, but it really comes down to fewer documents, a faster hearing process, the elimination of a committee of unsecured creditors, and the ability to approve a plan over the objections of some creditors. Because the law is new, courts are working diligently to provide new bankruptcy pleadings and other paperwork to make the new system work. Stay tuned for more updates on that process.
Businesses that exit Chapter 11 can look very different. Two recent filings by Kansas City area restaurant businesses can show this. One filing was by HRI Holding Corp., a company that operates the Houlihan’s family of restaurants (Bristol Seafood Grill, J. Gilberts, Houlihan’s). The plan, according to one source is to sell most of its assets to Landry’s LLC, another restaurant group. So the Chapter 11 would allow the restaurant’s owners to get new money to keep the business going, then allow for the sale to the new owners. That is one way to restructure and move forward.
Bread & Butter Concepts LLC also filed for bankruptcy protection. The owners of Gram & Dunn on the Plaza, among other venues, has not yet announced plans to sell off its restaurants and may try to stay open by acquiring financing and reworking leases or secured debts. The owners of most companies would probably prefer this outcome – retaining ownership of a business with most of its assets and far less debt. It’s unclear whether this will be successful, but it’s more appealing that defaulting on loans or filing a Chapter 7 and liquidating the business.
Businesses from mom and pop shops to trendy dining may need bankruptcy protection to stay viable and retain their employees and property. For more information on how you can use Chapter 11 to save your company, give us a call. We are here to help.