Matthew S. Kish of Shapiro, Blasi, Wasserman & Hermann.

Two recent developments will help many in the hospitality, restaurant and tourism industries avoid permanently shuttering their businesses due to the global COVID-19 pandemic.

The first we all know about—the CARES Act, which was enacted to address the economic impacts of COVID-19. The other, the Small Business Reorganization Act (the SBRA), has received relatively little fanfare since it went into effect on Feb. 19, just before the coronavirus started grabbing all the headlines.

The SBRA, appearing in Subchapter V of Chapter 11 of the Bankruptcy Code, provides small businesses with a more streamlined and cost-effective restructuring process than the traditional Chapter 11 bankruptcy. Why does this matter? Because high administrative costs had made it impossible for many small business owners to use bankruptcy to successfully restructure their debts, and they instead had to shut down their companies.

Even before the pandemic, the SBRA was meant to provide a much-needed lifeline to small businesses struggling to survive. The CARES Act makes a temporary, but significant, amendment to the SBRA—making this lifeline available to many more businesses in financial distress.

As originally written, the SBRA provides for a "debt ceiling" of just over $2.75 million for a "small business debtor" (either a company or an individual) that/who is primarily engaged in commercial or business activity. Now, the CARES Act temporarily increases that debt limit to $7.5 million. Lifting the ceiling increases the number, and types, of businesses that can use bankruptcy to survive the current crisis.

The SBRA, as amended by the CARES Act, will be a critical tool to save businesses. Expanding access to the SBRA's streamlined reorganization process will facilitate the recapitalization of these otherwise viable businesses and help them to bounce back from the economic effects of the pandemic more quickly, easily and cheaper than the traditional Chapter 11 process.

Another major change under the SBRA means that business owners no longer need to provide their own capital (also referred to as "new value") in order to reorganize over the objections of their unsecured creditors. This, in turn, means that business owners are in a much stronger negotiating position than they may have been in the past. Now, a small business owner can tell its unsecured creditors, "There's nothing to prevent us from confirming our plan of reorganization even if you disapprove, so let's make a deal."

Creditors will also need to understand how to navigate this new bankruptcy path because it affects them, too.

The biggest problem that most creditors face in a bankruptcy—indeed, in any type of court proceeding—is uncertainty. Because that uncertainty is now compounded by the unpredictability inherent with a global pandemic, it would be beneficial for creditors to understand these new laws so they protect themselves, and hopefully reach agreements as to how much, and when, they will eventually get paid.

The same logic applies to landlords and other secured creditors. Since it is unlikely that commercial landlords will be able to find replacement tenants during a global pandemic, they would be wise to work collaboratively with their current tenants to ensure they can restart their businesses, and start paying rent again, as soon as possible.

A clever restauranteur or hotelier who reaches deals with his creditors before filing for bankruptcy can also file what's known as a "prepackaged" plan of reorganization. Business owners who have everything neatly "tied up with a bow" will be more likely to have their plans approved by the court, certainly faster and at a much lower cost.

Given that we will see a flood of bankruptcies in coming months, debtors and creditors should start thinking now about how to assemble reorganization plans that include outside financing. Debtors can watch for investment funds now being formed that will put their skin in the game, albeit at higher interest rates. They will support plans that have a reasonable likelihood of success.

With more leverage and leeway under the SBRA and the CARES Act, debtors, hoteliers, restauranteurs and other South Florida business owners should understand that bankruptcy is not the dead end it may have been just two months ago. Creditors should also realize this too. Proper use of the two acts together means that, rather than lose their restaurants or hotels to debts that are piling up during the prolonged pandemic closure, business owners can work out a plan to keep their employees and save their businesses. If both sides work together, they can save more businesses, more jobs and ultimately help the South Florida economy come back faster—for everyone's benefit.

These changes will only last until March of 2021, so it is extremely important for business owners to act quickly if they want to take advantage of these critical tools to help protect their investments and save their businesses.

Matthew S. Kish is an attorney with Shapiro, Blasi, Wasserman & Hermann focusing his practice on bankruptcy, corporate restructuring and creditor rights. He may be reached at 561- 477-7800 or mkish@sbwh.law.

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2 New Laws Could Help Save South Florida's Hospitality, Restaurant and Tourism Industries

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