Fractional CFOs, Controllers & Financial Planning

Corporate Restructuring Consulting

It is particularly hard to lead a company when the primary focus is generating enough cash flow to keep the doors open and creditors at bay. It is not an experience you want to have. If you find yourself in this situation with no line of sight to get out, consider a plan of restructuring.

Restructuring means making changes to your past due payables, your debt, and to overall operations to ensure a company’s survival. These changes range from expense reductions, introduction of a new credit facility, substantial modification of vendor or other debt balances, and other similar actions, ultimately resulting in a plan where the company can operate, perform on obligations, and thrive going forward. There are many reasons a company may find itself in need of assistance – from overall poor management to underestimating the resources needed to move from one stage to another, to the impact of unanticipated outside economic events such as the current global pandemic.

SBRA Bankruptcy Protection under Subchapter V of Chapter 11

On February 17, 2020, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) extended advantageous bankruptcy protection provisions of the Small Business Reorganization Act (SBRA) to many small businesses. SBRA added a new Subchapter V to the traditional Chapter 11 reorganization provisions of the Bankruptcy Code, designed specifically for qualified small businesses.

Subchapter V provides a bankruptcy shortcut of sorts; a process that is much more efficient by:

  • lowering the overall costs of filing,
  • shortening the filing process,
  • eliminating the role of a creditor’s committee,
  • making it easier to get a plan approved,
  • and, most importantly to entrepreneurs, enabling a business owner to retain control and ownership of their company at the end of the process.

As originally released in February, any small business with debts less than $2.7 million would be eligible. However, the CARES Act increased the debt limit to $7.5 million for companies filing through March 27, 2021, enabling many more businesses impacted by COVID-19 to take advantage of this relatively fast and less expensive path.

Consider this new Subchapter V tool as a critical part of survival planning and move forward to take advantage of it while it is still available. vcfo’s experienced financial consultants are available to discuss the specific circumstances and whether Subsection V is a viable path for consideration. vcfo’s consultants also offer a new and reputable face to the lending and vendor community on your behalf, which can be the key to successful negotiations. Click here for a free consultation.

Whether you are a veteran of a prior restructuring or someone who never thought you would have to consider a filing, give yourself an edge and tap the vcfo team for calm, professional and experienced guidance through this difficult and critically important period of realignment. vcfo has been providing restructuring assistance to clients since our inception in 1996 and have successfully assisted numerous clients in navigating through periods of severe financial stress with restructuring activities or, in some cases, orchestrating an orderly wind down of operations.

Our approach to restructuring entails the following steps, led by a seasoned vcfo CFO consultant:

  • Reviewing the business and financial conditions to quantify the scope of the problem
  • Interviewing management, investors, board members and key team members to understand the environment and the reasons contributing to the financial crisis
  • Preparing an immediate four-month detailed weekly cash flow projection based on current sources of cash
  • Immediately correcting any corporate and D&O insurance that has lapsed for non-payment
  • Working with management to identify and implement cash saving strategies for the company
  • Studying terms of all vendor and debt agreements
  • Determining critical ongoing relationships and vendors
  • Reviewing all receivables for status and developing actions if needed
  • Evaluating conversion to cash of excess inventory and other assets not in use, if applicable
  • Preparing updated forward-looking forecasts reflecting necessary changes and covering at least a year in detail
  • Working with management to design a plan of repayment that is largely consistent with a proper restructuring methodology

With the above information we will work with you to make the best choice for restructuring.

  • In some cases, you may be able to restructure informally by renegotiating with your vendors and making operating adjustments to the business that can support modified debt terms. If this path is chosen, vcfo can assist with:
    • Offering a new and reputable face to the lending and vendor community on your behalf, which is important if the company has not performed against prior negotiated terms
    • Finding the optimal source of capital, if required, for the company to perform on a go forward basis
    • Negotiating to satisfactory terms with debt holders and vendors, if Chapter 11 is the best path forward
  • If an informal restructuring is not viable for you, vcfo will help you evaluate your other options:
    • SBRA Bankruptcy Protection under Subchapter V of Chapter 11: If you qualify based on the size of your debt, you likely will want to pursue this.
    • If you do not qualify for Subchapter V but do have a viable plan to present to creditors, then Chapter 11 is your likely path.
    • If a reset is not viable and a liquidation is ahead, you might be able to do it without a filing. The terms of creditor arrangements will likely make that call for you.
    • Complete liquidation through Chapter 7 is always an option, but generally the one of last resort.

Frequently asked Questions about Subchapter V:

On February 19, 2020, a new law went into effect known as SBRA, the Small Business Reorganization Act. It is also known as Subchapter V. Subchapter V is a special carve out of the traditional Chapter 11 re-organization provisions of Bankruptcy. SBRA is intended to simplify the bankruptcy process for qualifying small businesses by increasing the efficiency of the Bankruptcy process, lowering the overall costs of filing, enabling a path for business owners to retain ownership of their company, and making it easier to get a plan approved.

Businesses with up to $7.5M who file prior to March 27, 2021 are eligible.
As originally written any small business with debts less than $2.7M are eligible but part of the CARES act increased the debt limit to $7.5M, through March 27, 2021.  (There are some exclusions largely around single asset real estate entities).

The plan of reorganization must be submitted for approval within 90 days of an initial filing. Compared to the timing of Chapter 11 bankruptcies, this is lightning fast. Those planning to use this should have their plan well developed and documented before the filing to comply with the shorter deadline.

Filers must provide a standard set of financial statements: balance sheet, income statement, and cash flow statement, a copy of the most recent tax return, and the plan of reorganization.

No. One of the big advantages to a Subchapter V filing is it can only be filed by the debtor; creditors do not have standing. However, a vendor can always try to force a traditional Chapter 11 Reorganization. Based upon the level of debt, the company can probably outmaneuver a Vendor effort and file under the Subchapter V provisions.

Debtors retain ownership if they follow a court approved plan and make payments on time. A standing trustee is appointed to monitor plan progress to avoid problems.

If you mortgaged your residence to fund the business, the loan may be eligible for restructuring as part of a Subchapter V plan.

Yes.  Subchapter V does not waive personal guarantees.