News & Articles

Small Business Bankruptcy and Receiverships

Published on 3/27/2020

In these difficult and trying times we are asked about the whens and the whats of filing a corporate bankruptcy. People are surprised to learn that in Oregon and Washington bankruptcies have fallen out of favor. Instead, there has been a boom in state court receivership filings. The reason why is simple: compared to a full-fledged Chapter 11, state receiverships are faster, less formal, and come with much less red tape.

In 2004, Washington enacted sweeping changes to its receivership law which was further refined with amendments in 2011. It took several years for receiverships to take hold with local practitioners. By the time the Great Recession hit the state, there were more Chapter 11 Single Asset Real Estate cases than receiverships. Following the recession, practitioners realized that receiverships were far more efficient and contained one very important provision: granting receivers the power to sell receivership assets free and clear of liens. It was not a coincidence that in 2018 Oregon enacted its own form of a receivership code. It also contained a provision allowing for assets free and clear of liens. Receiverships have exploded in popularity in the ensuing years. They have helped small businesses ranging from technology startups and general contractors to real estate investment companies. Unfortunately, the boom in receiverships is directly impacting new Chapter 11 filings which have dwindled to only a handful a quarter in the region.

There is a new hope for small businesses due to a recent amendment to Chapter 11 of the Bankruptcy Code. A new subchapter to the Bankruptcy Code including a provision directed at helping small businesses became effective on February 19, 2020. Known as the Small Business Reorganization Act and commonly referred to as Sub-chapter V, the amendment provides for a stripped-down, faster, and less expensive bankruptcy process. When it was enacted, the law only applied to businesses that had $2,725,625 or less in debt. When President Trump signed the Coronavirus Aid, Relief and Economic Security Act today, among the important help for small businesses, it also contained a temporary increase to the Subchapter V debt limit up to $7.5 million. This change in debt limit opens the bankruptcy relief process to a whole new business sector.

 

Additional COVID-19 Resources for Businesses

Please visit our COVID-19 Alerts and Resources for Businesses page for an updated list of local and federal resources, along with additional Ryan Swanson COVID-19 practice alerts.

For more information on the new Subchapter V of the Bankruptcy Code, please contact Joe Sakay, Adam Doupé or Helen Hapner in Ryan Swanson’s Corporate Bankruptcy, Restructuring & Finance Group.






This message has been released by the Corporate Bankruptcy, Finance & Restructuring group at Ryan, Swanson & Cleveland, PLLC to advise of recent developments in the law. Because each situation is different, this information is intended for general information purposes only and is not intended to provide legal advice on any specific facts and circumstances. Ryan, Swanson & Cleveland, PLLC is a full-service law firm located in Seattle, Washington.

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