COVID-19

Summary

Sullivan Hill understands the importance of providing efficient, reliable and responsive legal representation. For more than 50 years, this understanding has enabled us to provide the best, most cost-effective service and solutions available to all of our clients. Our firm will provide relevant information and resources on this page to help you and your business as we continue to navigate the COVID-19 pandemic together. 

See below for Sullivan Hill’s News Updates related to COVID-19. 

Should you have any questions, please contact us. Our attorneys and staff are working remotely from home and have full access to our firm’s secure remote systems. Sullivan Hill will continue to be available by phone during regular business hours, 24/7 via email, and also has the ability to meet virtually via telephonic or video conferencing means. For more information on how our firm is currently operating, view the announcement made by Managing Shareholder Robert Allenby

For additional links and resources, click here.

News Updates

June 11, 2020

“BANKRUPTCY IN 2020: Part of the Treatment; Part of the Cure” by Of Counsel Elizabeth Stephens

These are uncertain, difficult and therefore, stressful times. It is a good time to remind ourselves, however, that the U.S. economy is highly resilient. An important reason for its resilience is the Bankruptcy Code, which carefully balances the need

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These are uncertain, difficult and therefore, stressful times. It is a good time to remind ourselves, however, that the U.S. economy is highly resilient. An important reason for its resilience is the Bankruptcy Code, which carefully balances the needs of debtors of all kinds, but especially small and large businesses, with the rights of creditors. Facts and information may help blunt the uncertainties and pessimism of these days. Further, a spate of legislation was passed in 2019 and 2020, which greatly enhances the effectiveness of the Bankruptcy Code.

Overview: The Bankruptcy Code allows a debtor, including corporations and other business entities, to file for relief under Chapter 7, a liquidation bankruptcy, or Chapter 11, including the new Subchapter V, for reorganization. Despite their different objectives and outcomes, there are many common principles, powers, and duties associated with each.

In a Chapter 7 proceeding, a trustee is appointed to liquidate the debtor’s assets in an expeditious manner. The Chapter 7 trustee has management and control of the debtor’s assets and has the duty to liquidate them and distribute any available proceeds to satisfy the claims of creditors. The officers, directors, and shareholders of a corporation or business are divested of all management and control over the debtor’s assets.

By contrast, in a Chapter 11 proceeding an entity or person may seek to confirm a plan of reorganization to restructure liabilities and allows the debtor to emerge from the bankruptcy and carry on its business. In most instances, the debtor in possession and its existing management continue to exercise management and control over the estate’s assets. The debtor in possession has most of the same authority, powers, and duties as does a trustee in a Chapter 7 proceeding. Those powers include the power to assume or reject executory contracts and unexpired leases, present and confirm a plan, and file actions to recover preferences and fraudulent conveyances.

Two other types of reorganization cases can be utilized by businesses. Chapter 13 protection is only available to individuals, but sole proprietorships often come into the bankruptcy along with the individual. A Chapter 13 acts like a consolidation loan. A trustee is appointed; the individual makes payments to the trustee, who then distributes payments to creditors. Chapter 12 is available to family farmers or fishermen. A trustee is appointed and payments are made to the trustee and distributed, but there are additional benefits available to the debtor under Chapter 12, which are unavailable under any other Chapter.

Recent Legislation: A flurry of new laws were enacted affecting the Bankruptcy Code in 2019 and 2020. Some laws effect permanent changes in the Code, while others were enacted to blunt the economic impact of the pandemic and these provisions have, at present, sunset clauses.

Small Business Reorganization Act (SBRA): The SBRA created Subchapter V of Chapter 11 and affected many sections of the Bankruptcy Code. It is expected that Subchapter V bankruptcies will proceed faster and at less expense and litigation than under a Chapter 11. Fewer professionals will need to be employed and the Subchapter V trustee, appointed in every case, will facilitate the administration of cases.

A small business debtor is defined as a small business with combined secured and unsecured debt of $2,725,625, increased temporarily under the CARES Act to $7,500,000. A small business debtor becomes a Subchapter V debtor by making an election in the petition. Unlike in a Chapter 11, the debtor may continue to use pre-petition professionals, including legal counsel.

The debtor functions as a debtor in possession unless removed by the Court. There are no creditors’ committees unless the Court orders them. There is also a trustee appointed, whose duties are to facilitate the bankruptcy. Only the debtor may file a plan and it should be filed within 90 days after the order for relief is entered.

No disclosure statement is required, although the plan requirements include some of the information usually provided in a disclosure statement, such as a brief history of the debtor’s business and a liquidation analysis. The confirmation requirements are more lenient than those in a standard Chapter 11. While the trustee must ensure the debtor commences timely payments, the trustee’s services terminate upon substantial confirmation of the plan. All these attributes should result in a less expensive, fast-paced reorganization.

Family Farmer Relief Act of 2019 (FFRA): The FFRA simply increased the debt limit for family farmers and fishermen from $4,411,400 to $10,000,000. It is anticipated that the increase will allow many more farmers to file under Chapter 12. Chapter 12 filings increased by 20 percent in 2019. By comparison, the debt limit under Chapter 13 is $1,677,125, and under Subchapter V for small businesses the debt limit is $2,725,625, although it was temporarily increased under the CARES Act.

Coronavirus Aid, Relief and Economic Security Act (CARES Act): The CARES Act became law on March 27, 2020, as an emergency act in direct response to the Coronavirus Pandemic. Many provisions of the Act affect everybody, but some specific provisions temporarily change portions of the Bankruptcy Code.

  • First, the combined secured and unsecured debt limit is increased from $2,752,625 to $7,500,000 for the Subchapter V filings.
  • Second, Coronavirus related assistance is excluded from the calculation of “current monthly income” and “disposable income” in Chapters 7 and 13. 
  • Third, a Chapter 13 plan may be modified after confirmation to extend up to seven years from the date of the first payment under the plan was due. This allows debtors an extra two years to complete a plan, if approved by the Bankruptcy Court.

These provisions automatically expire one year after the date of enactment of the CARES Act. The Act also provides temporary relief through September 30, 2020 to borrowers of federal student loans by allowing six months of deferrals. The Act also provides relief from foreclosure on federally backed mortgages at the written request of the borrower. It provides for a 180-day forbearance period.

As always, bankruptcy – both liquidation and reorganization – will play a role in the economic recovery of individuals and businesses. But the beefed up Bankruptcy Code will especially enable small businesses of every stripe, from the sole proprietor to the family farmer, to reorganize efficiently and, thus, aid them in adjusting to what lies ahead.

There are many remedies available for stressed debtors and numerous protections for their stressed creditors. Sullivan Hill is standing by to consult and explain how the various options apply to your situation and to help you decide on your best course of action. Stay well!

Of Counsel Elizabeth Stephens serves as managing attorney of Sullivan Hill’s Las Vegas office. She practices in the area of insolvency and bankruptcy, primarily representing trustees and creditors in consumer bankruptcies. She is also an experienced appellate lawyer.

About Sullivan Hill:

Sullivan Hill has provided efficient, aggressive, and responsive legal representation for more than 50 years. The firm provides full service representation to clients in a variety of industries with an emphasis in insolvency, construction disputes, insurance coverage, real estate, business disputes, civil litigation, and transactional work. The firm has offices in San Diego and Las Vegas.

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June 2, 2020

Chapter 12 Bankruptcy and the Family Farmer Relief Act

This year – 2020 – has brought many changes to everyone, no matter who they are or what they do.  If you are a family farmer, or involved in a family fishing business, you may have an option not available to other debtor

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This year – 2020 – has brought many changes to everyone, no matter who they are or what they do.  If you are a family farmer, or involved in a family fishing business, you may have an option not available to other debtors seeking relief under the Bankruptcy Code: namely, Chapter 12.  The United States Senate passed the “Family Farmer Relief Act of 2019” (H.R. 2336), which substantially increases the debt limit for agricultural producers and family fisherman seeking to file for relief under Chapter 12 of the United States Bankruptcy Code, from approximately $4.3 million to $10 million. In addition to the increased debt limits, persons that qualify and file under Chapter 12, and are able to confirm a plan, are allowed significant tax benefits that are not available to debtors under other chapters of the Bankruptcy Code.

Even before the current COVID-19 pandemic, the small family farmer, trying to support themselves as well as the U.S. agriculture industry, had been dogged by years of low farm income, crop overproduction, increased debt loads, natural disasters, extreme weather events, and, more recently, retaliatory tariffs.  The current pandemic will likely result in many more family farmers and fisherman looking into filing for bankruptcy as a way to obtain some breathing room and deal with their debts and businesses.

If you or someone you know believes that Chapter 12 may be an option for you, our attorneys have skill and experience in this area, and are prepared to meet with you and discuss your options.  Please contact Elizabeth Stephens at stephens@sullivanhill.com in our Las Vegas office or Kathleen Cashman-Kramer at cashman-kramer@sullivanhill.com in our San Diego office for more information.

Sullivan Hill’s Insolvency and Commercial Bankruptcy practice group is well-known both locally and nationally for its extensive experience in the representation of creditors, debtors, trustees, creditors’ committees and receivers.

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May 4, 2020

Sullivan Hill Can Help Your Small Business During the COVID-19 Crisis

Small businesses struggling to survive the COVID-19 crisis may find relief in Subchapter V of Chapter 11 of the Bankruptcy Code, also known as the Small Business Relief Act of 2019. Our lawyers are well versed in this potential lifeline for small bus

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Small businesses struggling to survive the COVID-19 crisis may find relief in Subchapter V of Chapter 11 of the Bankruptcy Code, also known as the Small Business Relief Act of 2019. Our lawyers are well versed in this potential lifeline for small businesses and can assist clients to determine whether Subchapter V is a viable option.

For more information, visit our Insolvency & Commercial Bankruptcy practice page.

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May 1, 2020

New Laws Provide Small Business Bankruptcy Relief and Additional Protections for Veterans

It could not have occurred at a more appropriate time in our economic lives.  The Small Business Reform Act of 2019 (“SBRA” or “Subchapter V”) became effective on February 19, 2020.  It provides a simple and quick p

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It could not have occurred at a more appropriate time in our economic lives.  The Small Business Reform Act of 2019 (“SBRA” or “Subchapter V”) became effective on February 19, 2020.  It provides a simple and quick process for reorganization in bankruptcy for small businesses.  Moreover, in response to COVID, the SBRA is currently available for debtors who owe $7,500,000 or less.

The purpose of SBRA is to provide a streamlined reorganization process for small business debtors, as defined in 11 U.S.C. section 101 (51 D)(A), by implementing a procedure to obtain a consensual plan of reorganization.

Eligibility: To qualify as a small business debtor under SBRA the debtor’s aggregate amount of debt, which was originally $2,725, 625, was increased to and cannot exceed $7.5 million.  Section 101 (51 D)(A).  However, pursuant to the enactment of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) the eligibility threshold will return to $2,725,625, after one year from February 19, 2020.  Small business debtors must opt into Subchapter V by checking the appropriate box in item 13 of a voluntary petition.  A debtor that initially files a voluntary Chapter 11 can mid case, file an amendment of the voluntary petition by designating the case to one under Subchapter V.  In re Progressive Solutions, Inc., 2020 Bankr. Lexis 467 (Bankr.C.D.Cal. 2020).  In Progressive Solutions, Inc, supra, the court determined that no leave of court is required to file an amendment, however if there is a re-designation a party in interest can object within 30 days after either the date the amendment was filed or the conclusion of the creditor meeting.  The court will then conduct a hearing to determine eligibility.  Rule 1020 (b) of the Federal Rules of Bankruptcy Procedure.

The other requirement for Subchapter V eligibility is that at least 50% of the small business debtor’s business must be derived from commercial business activities.  Sections 101 (51D) (A), and 1182 (1) and (2).

SBRA also modifies the real estate exclusion for a small business debtor.  A debtor whose primary activity is the business of owning real estate remains ineligible but the language “or operating real property or activities incidental there to” has been stricken and replaced with “single asset real estate”.  Section 101 (51 D)(A).  Therefore, a debtor whose primary activity is to own or operate more than one property is now eligible for Subchapter V.

Once a Subchapter V is filed (or the pending Chapter 11 is amended) the Office of the United States Trustee will appoint a Subchapter V trustee whose primary responsibility is to facilitate the development of a consensual plan of reorganization.  Also, if the debtor ceases to be a debtor in possession then the Subchapter V trustee’s duties include operating the business.  Section 1183 (b)(5) and (7).  The full panoply of the duties of a Subchapter V trustee are set forth in section 1183.  The services of the Subchapter V trustee terminate when the plan has been substantially consummated.  Section 1183(c)(1) and (2).

The Subchapter V trustee is to collect and retain payments until the plan is either confirmed or denied.  If the plan is confirmed, then the payments are distributed in accordance with the plan terms.  Section 1194(b).  If the plan is not confirmed the trustee is to return to the debtor all payments made, after deducting unpaid administrative claims, adequate protection payments to secured creditors and the fees of the trustee.  Section 1194 (a).  The fees for the trustee are identical to those of chapter 12 and chapter 13 trustees consisting of a 5% fee from all payments received by such individual under the plan.  28 U.S.C. section 586.

Definition of a Small Business Debtor: It is still a debtor in possession with all the rights and powers, other than the right to compensation under section 330.  The small business debtor shall perform all functions and duties of a standing trustee, except the duties specified in paragraphs (2), (3) and (4) of section 1106 (a). Section 1184.

A debtor can still be removed as a debtor in possession for “cause, including fraud, dishonesty, incompetence or gross mismanagement of the affairs of the debtor, either before or after the date of commencement of the case, or for failure to perform the obligations of the debtor under a plan confirmed” under Chapter V.  Section 1185(a).

The Plan and The Approval Process: No later than 60 days after entry of the order for relief (unless extended on a finding that an extension is warranted attributable to circumstances for which the debtor should not be accountable), the court will conduct a status conference to facilitate the expeditious and economical resolution of the case.  Section 1188 (a) and (b).  What if the debtor amends its petition at a time subsequent to 60 days after entry of the order for relief? When is the status conference held? It is believed that the status conference would be held within 60 days after filing the amendment.

In preparation for the status conference the debtor shall file a status report within 14 days of the status conference and serve it on parties and interest and the trustee.  The purpose of the report is to detail the efforts the debtor has undertaken and will undertake to attain a consensual plan of re-organization.  Section 1188(c).

Modification of the disclosure statement and the process for approval of the plan highlight the goal of the SBRA.  The first prong of the streamlined process is that the plan is filed no later than 90 days after the entry of the order for relief, except if there are extraordinary circumstances for which the debtor should not be justly accountable.  And only the debtor can file a plan.  There can be no competing plans.  Section 1189.  To further aid in the implementation of obtaining a consensual plan, no creditor committee is appointed “unless the court for cause orders otherwise”.  Section 1181 (b).  In most cases no separate disclosure statement is required.  Section 1181 (b).  Instead the plan shall include a brief history of the business operations of the debtor; a liquidation analysis; and projections with respect to the ability of the debtor to make payments under the proposed plan of reorganization.  Section 1190 (1).  Yet if the court does require the filing of a disclosure statement then section 1125 (f) is applicable.  Section 1187 (c).  In addition, the Subchapter V plan now allows the debtor to modify a secured creditor’s lien in real property that is the debtor’s residence if the new value provided to the secured creditor in connection with the granting of the secured interest was used to acquire the real property and used primarily in connection with the small business of the debtor.  Section 1190(3).

Further modifications of the plan approval process focus on “what is property of the estate”? Business owners can retain their interest in the debtor without paying holders of non-consenting impaired classes.  Section 1181 (a).  Disposable income has been redefined to mean income that is received and not reasonably necessary to be expended for (1) maintenance and support of the debtor or dependent of the debtor; (2) a domestic a support order that first becomes payable post petition; or (3) for the payment of expenditures necessary for the continued operation or preservation of the debtor’s business.  Section1191(d).  Concerning post petition earnings, section 1115 defining the scope of property of the estate in an individual case, is not applicable.  Under SBRA if a plan is confirmed without the consent of all impaired classes property of the estate includes all post petition property acquired and earnings from services performed before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13.  Section 1186 (1) and (2).  Additionally, the plan shall provide for the submission ·of all or such portion of the future earnings or other future income of the debtor to the trustee as necessary for execution of the plan.  Section 1190 (2).

Plan confirmation is simpler than for other Chapter 11 cases.  If all the requirements of section 1129(a) other than (8), (10) and (15) are satisfied, then the court shall confirm the plan notwithstanding the absence of an impaired accepting class of claims so long as the plan is fair and equitable and does not unfairly discriminate.  Section 1191 (b). A plan may be modified before confirmation unless it fails to meet the requirements of sections 1122 and 1123, with the exception of section 1123 (8) regarding the commitment of income from personal services now found in section 1190 (2).  Modification after confirmation, before or after substantial confirmation, may be approved if circumstances warrant.  Section 1193(b ).  The time within which the debtor may modify the plan is three years or longer as may be approved by the court not to exceed five years. 1193 (c).

Under section 1192 if the plan is confirmed under section 1191 (b) then as soon as practicable after completion by the debtor of all payments due within the first three years of the plan or such longer period not to exceed five years, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant to get a discharge of all debts provided in section 1141 (d)(1) and all other debts allowed under section 503 except any debt on which the last payment is due after the first three years of the plan are such other time not to exceed five years or of the kind specified in section 523 (a) of this title.

The Haven Act: The HAVEN ACT,  known as the “Honoring American Veterans in Extreme Need Act of 2019” provides that veterans can exclude disability benefits from the calculation of current monthly income.  The new law means that veterans will no longer be compelled to pay a portion of their disability benefits to creditors under chapter 13 plans.  Section 101 (10A) now excludes “monthly compensation, pension, pay, annuity or allowance under title 10, 37, or 38 in connection with a disability, combat related injury or disability, or death of a member of the uniformed services.”  The HAVEN ACT applies to pending cases.  It places military disability benefits in the same protected category as Social Security benefits.

Shareholder Gary Rudolph authored the article above which was published in the Business Law Section eNews (April 2020) by the California Lawyers Association (CLA)

Mr. Rudolph practices in the areas of bankruptcy and other insolvency matters, including representation of trustees, corporate Chapter 7 debtors, Chapter 11 debtors-in-possession, and creditors in commercial bankruptcy proceedings. He also serves as a mediator for the United States Bankruptcy Court for the Southern District of California.

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