With much of the global economy grinding to a halt, most economists acknowledging that we are in the midst of a recession (perhaps on the verge of unemployment rivaling the Great Depression), and much of the congressional relief efforts centered on major corporations, many Americans are concerned about the fate of small businesses, and indeed their employees, impacted by the COVID-I9 pandemic. The number of confirmed coronavirus cases now exceeds 551,246 (with more than 85,000 cases in the United States). And one in four Americans is under some form of travel or work restriction. Goldman Sachs recently estimated more than 2.5 million people filed for unemployment relief last week. Under the circumstances, it is difficult to predict when the curve will flatten or how long it will take for the economy to stabilize. It is clear however, that the small businesses that drive the American economy will be hit hardest. This is because liquidity is key to weathering any economic storm. Absent access to credit, or adequate cash reserves, many small businesses will be faced with the prospect of shuttering.
Yet, there is hope. Resiliency is ingrained in the DNA of the American people. What’s more, our founding fathers, had the foresight to authorize Congress to enact uniform bankruptcy laws under the auspices of the Constitution. During the Great Depression, Congress enacted the Corporate Bankruptcy Act—which for the first time allowed corporate debtors to reorganize. The Corporate Bankruptcy Act is the predecessor to Chapter 11 of the U.S. Bankruptcy Code which today is used by distressed corporations to restructure and return to business as a going concern or liquidate in an orderly fashion. However, Chapter 11 bankruptcy proceedings are often criticized as too costly and complicated for small business owners to take advantage of.
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