Small Business Debt in the Age of COVID-19

Introduction

The novel SARS-CoV-2 coronavirus (“Coronavirus” or “COVID-19”) shook the world in early-2020. Although the virus originated in Wuhan, China in 2019,[1] it quickly spread to over 100 other nations, including the United States.[2] The World Health Organization (“WHO”) announced Coronavirus as a global pandemic on March 11, 2020.[3] Since then, the global economy came to a screeching halt.[4]

As of May 7, 2020, the world fell victim to 3,800,000 million cases of COVID-19 and over 200,000 deaths;[5] the United States fell victim to over 1,200,000 million cases and over 75,000 deaths.[6] In a response to the spreading pandemic, county officials and state governors began instituting “stay-at-home” orders, thereby requiring citizens to remain indoors except for certain exempted reasons.[7] As a result of the stay-at-home orders, thousands of businesses shutdown in early 2020.[8]

Notably, small businesses make up ninety-nine percent of all businesses in the United States.[9] Undoubtedly, then, COVID-19 has had a substantial impact on small businesses, most of which cannot survive an extended shutdown.[10] Indeed, former head of the Small Business Administration (“SBA”), Karen Mills, has noted that an extended shutdown will exterminate many small businesses.[11] Mills stated that the average small business has a cash buffer of about twenty-seven days.[12] Remove a small business’s steady cash flow, however, while “still paying employees and other expenses like rent and [any] loan payment[s], then pretty soon [the business] run[s] out of money . . . .”[13]

The Small Business Reorganization Act (“SBRA”),[14] which created Subchapter V in Chapter 11 of the Bankruptcy Code, may be a saving-grace of these concerns. The SBRA sought to address the impracticalities, burdens, and expenses imposed by pre-SBRA Chapter 11 filing.[15] Thus, the SBRA’s aim was “designed to promote simplicity and efficiency for reorganization of small-business debtors”[16] and to “strike a balance between chapter 7 and chapter 11 bankruptcies for small-business debtors.”[17] In striking that balance, Congress included in the SBRA the following key features:

(1) [R]equiring the appointment of an individual to serve as the trustee in a chapter 11 case filed by a small business debtor, who would perform many of the same duties required of a chapter 12 trustee;

(2) [R]equiring such private trustee to monitor the debtor’s progress toward confirmation of a reorganization plan; and

(3) [A]uthorizing the court to confirm a plan over the objection of the debtor’s creditors, providing such plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.[18]

Congress’s enactment of the SBRA has widespread effects – “[b]usinesses that would have previously had to liquidate now may have a new chance to survive . . . Approximately half of all Chapter 11 debtors will now be able to take advantage of [Subchapter V] . . . .”[19] Little did Congress know when passing the SBRA, however, was that a global pandemic would rock the United States, and indeed the world, shortly after the SBRA amendments became effective in February 2020.

Regardless of the potential lifeline that Subchapter V provides, small business debtors must nonetheless be cognizant of several wrinkles COVID-19 presents in what otherwise may have been a relatively seamless transition amendment to the law. Notably, small business debtors must be aware of relevant portions of the recently passed Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”),[20] specifically with regard to the Paycheck Protection Program (“PPP”). Additionally, small business owners should not rely on business interruption insurance proceeds to help them repay their debts. Further, debtors should be aware that debtor-in-possession (“DIP”) lending will likely dip in the coming months, much like it did during the 2008 to 2010 financial crisis. Ultimately, in an attempt to further the purpose of the SBRA, this paper urges bankruptcy courts to adopt relevant Chapter 12 and Chapter 13 precedent and apply that precedent to upcoming Subchapter V cases.

The CARES Act: Beware the PPP Loans

Congress passed the CARES Act on March 27, 2020 in an attempt to save the American economy from another depression.[21] The CARES Act is the largest stimulus package in United States history, measuring in at $2.2 trillion, which is approximately three times the stimulus package Congress passed during the Great Recession, which occurred from 2007 to 2009.[22] Specific to small businesses, the CARES Act established the Paycheck Protection Program (“PPP”),[23] made changes to the SBA’s Economic Injury Disaster Loan (“EIDL”) program, [24] and nearly tripled the debt limitation under Subchapter V from $2,750,000 to $7,500,000 for one year, until March 27, 2021.[25]

The PPP modified the Small Business Administration’s (“SBA”) 7(a) loan program and created new business loans under the SBA.[26] Congress created PPP loans, allocating $350 billion to the SBA, in an attempt to incentivize small businesses to keep their workers on the payroll.[27] Eligible small businesses, typically those with less than 500 employees, may receive 2.5 times their average monthly payroll, up to a maximum of $10,000,000, with a one percent fixed interest rate, and payment deferrals for up to six months.[28] As an incentive to seek a PPP loan, the SBA will forgive the loans so long as the business keeps all employees are on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.[29] The company must also maintain employee compensation levels for eight weeks after the loan is dispersed.[30] Currently, the SBA guarantees that it will fully forgive PPP loans until December 31, 2020.[31] Starting January 1, 2021, the SBA will only forgive up to seventy-five percent of loans that exceed $150,000 and up to eighty-five percent for loans equal to or less than $150,000.[32] This is only the case, however, if 100 percent of the loan proceeds are used toward approved purposes – i.e., if the company keeps all employees on payroll for at least eight weeks, maintain employee compensation levels for at least eight weeks, and properly use the PPP funds for payroll, rent, mortgage interest, or utilities.[33]

PPP loans thereby lessen one of the financial burdens small businesses are currently facing – how to pay their employees. The PPP loan terms, however are confusing at best[34] and may cause small businesses headaches in the event the businesses choose to file for bankruptcy under Subchapter V. Although PPP loans carry loan forgiveness provisions, their confusing terms could result in many businesses failing to follow through on their end of the loan, regardless of intent. Thus, it would behoove companies to make certain they can abide by the loan’s terms before seeking a PPP loan. Failing to do so could prove fatal for the business’s finances. Additionally, because the PPP has placed such strict limitations for activities in which the loans can be used, borrowers should beware of co-mingling PPP loans with other funds. Any blip in the company’s accounting could render the company liable for up to $10,000,000.

Furthermore, commentators anticipate a “surge” of Subchapter V bankruptcy filings once Congress extinguishes all allocated PPP funds.[35] This is especially likely should businesses fail to meet the specific forgiveness terms of PPP loans. Thus, small businesses must determine whether seeking a PPP loan is in their best interests. Companies must be aware that failing to meet the PPP loan requirements could render them up to $10,000,000 more in debt than they were previously. As such, they will no longer be eligible to file for bankruptcy under Subchapter V if they exceed the $7,500,000 million debt limitation.

Small businesses must also consider the timing of their Subchapter V filing. If the debtor waits to file for bankruptcy until after March 27, 2021, Subchapter V’s debt limitation will decrease almost three-fold, dropping from $7,500,000 million to $2,725,650 million.[36] After March 27, 2021, should the debtor be found to have breached the terms of the PPP loan, the debtor is even more likely to be ineligible for Subchapter V relief. Therefore, a small business seeking a PPP loan should be cognizant of the timeframe in which it must abide by the terms of the PPP loan.

Small businesses must also be aware that, according to the PPP’s Borrower Application Form, a debtor that has already filed for bankruptcy may not apply for a PPP loan.[37] Additionally, a debtor is ineligible for a PPP loan if it, or any of its owners or subsidiaries, are currently delinquent on or defaulted on a Federal loan within the past seven years.[38] Although courts are split on the issue of whether the government can deny PPP assistance to bankrupt debtors under Section 525(a) of the Bankruptcy Code,[39] small businesses should nonetheless be aware of this caveat. In an abundance of caution, bankrupt debtors, and debtors who have subsequently defaulted on federal loans, should not rely on PPP loans to assist them through the Subchapter V process. Additionally, although the CARES Act increased the debt limitation to $7,500,000 under Subchapter V, businesses nonetheless need to prepare for the worst – i.e., bankruptcy – especially because they likely cannot rely on their business interruption insurance to refund any lost revenue during the shutdowns.[40]

Business Interruption Insurance: Friend or Foe?

Business interruption (“BI”) insurance could be the life preserver ailing companies need in the midst of the COVID-19 crisis – that is, if the insurance is available. BI insurance attempts to put insureds in the place they would have occupied had the interruption not occurred.[41] In doing so, BI coverage “is intended to replace a policyholder’s lost revenues” during the period of which the business is shutdown.[42] Indeed, the business’s “inability to produce income while the plant is out of commission . . . can easily be the most significant financial loss.”[43]

BI losses are typically large, with some reaching billions of dollars in lost revenue.[44] According to the Federal Emergency Management Agency (“FEMA”), approximately forty to sixty percent of small businesses fail after experiencing a disaster.[45] More specifically, approximately ninety percent of small businesses “fail within a year unless they can resume operations within 5 days.”[46] BI insurance, however, may be a way for these businesses to continue operating post-disaster, but only if the claim is covered.[47]

With regard to COVID-19, the American Property Casualty Insurance Association estimates that small businesses with 100 or fewer employees will see losses of up to $431 billion per month, collectively.[48] This number is forty-three to seventy-two times the monthly premiums for commercial property insurance policies,[49] and nine times the amount of damages that arose from the 9/11 terrorist attacks.[50] Unfortunately, for businesses, these losses may not be covered.[51] Notably, if communicable diseases are explicitly covered under the insurance policy, any dispute is clear-cut. Unless the insurer can assert a defense,[52] the insurer must cover the loss based on the language of the policy. If the policy does not provide coverage, or is ambiguous regarding coverage, however, disputes may arise. Indeed, businesses have already suited up for coverage litigation.[53]

In these disputes, insureds will likely argue that, absent any specific exclusions for communicable diseases, based on the concept of contra proferentem,[54] a broadly-worded BI policy should be construed in favor of the insured. Importantly, all fifty states and the District of Columbia have adopted the doctrine of contra proferentem.[55] Thus, this argument can be applied across the country, regardless of which jurisdiction the company files suit. Additionally, if the broadly-worded policy language creates “many lawsuits with inconsistent results,” which could be the situation with COVID-19 coverage litigation, the courts typically rule that the policy language is ambiguous.[56] If the policy language is considered ambiguous, then most courts will rule in favor of coverage.[57]

Insureds will also likely argue under applicable provisions for contingent business interruption and interruption due to civil or military authority or loss of ingress/egress (“civil authority clause”).[58] Furthermore, insureds may argue that their businesses were “uninhabitable,”[59] thereby causing direct physical loss, which an insured is required to prove to recover under a BI policy.[60] This uninhabitability argument stems from the ability of COVID-19 to remain on surfaces for days.[61] Many courts have already found that an uninhabitable business constitutes a direct physical loss.[62] Thus, this may be a winning argument for insureds. Nonetheless, insurers will assert counterarguments of their own.

Insurers will likely argue that communicable diseases, such as COVID-19, are not covered because they are uninsurable risks that are too unforeseeable.[63] Arguably, communicable diseases are not insurable because they put the insurer at risk for insolvency.[64] Additionally, even if COVID-19 is insurable, insurers will likely argue that it did not cause “direct physical loss” to the premises. Indeed, courts reviewing analogous situations have found that coverage does not exist.[65] Further, businesses filing suit under a policy’s civil authority clause must nonetheless overcome the “direct physical loss” requirement.[66] Thus, if the court finds that the plaintiff did not prove “direct physical loss,” the plaintiff will not prevail under the civil authority clause. Additionally, the argument for coverage under the civil authority clause will falter in some cases depending upon the language of the underlying policy. For example, some Hartford Financial Services Group BI policies read:

This insurance is extended to apply to the actual loss of Business Income you sustain and the actual, necessary and reasonable Extra Expense you incur when access to your “Scheduled Properties” is specifically prohibited by order of a civil authority as the direct result of a Covered Cause of Loss to property in the immediate areas of your “Scheduled Premises.”[67]

Therefore, to prevail under the civil authority clause, businesses must prove that the civil authority order shutting down the business was due to a covered loss; however, communicable diseases are typically not covered.[68] If the insurer can prove that the civil authority order was the result of COVID-19 and that COVID-19 is definitively an uncovered loss, then the insurer will prevail.

Furthermore, insurers may argue that the business’s “uninhabitability” cannot be proven. Generally, any “contamination” rendering a business “uninhabitable” must be proven through testing of the premises.[69] This testing would therefore prove that the business was “unfit for occupancy and use.”[70] According to a study published by the New England Journal of Medicine, however, COVID-19 is thought to last for only seventy-two hours on plastic, forty-eight hours on stainless steel, twenty-four hours on cardboard, four hours on copper, and three hours in the air.[71] Therefore, unless the company tested the premises prior to closing, this evidence is likely lost.[72] Even if insurers are required to pay claims filed by companies under their BI policies, another time- and money-consuming endeavor is litigating how much the claim is worth.[73] Indeed, due to the uncertain nature of COVID-19 crisis, companies and insurers will likely argue over BI claims for years to come.

Although decisions regarding BI coverage will inevitably vary across the country based on differing case law and policy language, businesses should not rely on BI coverage to shovel them out of debt. First, the timing of claims could affect the business’s decision to file for bankruptcy. For example, most policies require the business to close for a specific amount of time before the business can file a claim.[74] Additionally, once business files a claim, the insurer typically has thirty days to review the claim and decide whether to cover the claim.[75] Given the uncertainty regarding whether BI policies cover the novel Coronavirus situation, the business’s insurer will likely deny the claim.[76]   Furthermore, some courts have suspended new filings of nonessential claims.[77] Thus, litigation could take years to resolve. Coverage litigation involving COVID-19 is no exception. Unfortunately, the failing business likely does not have years to wait to file a lawsuit or wait for a decision regarding its BI coverage. Indeed, without active cash flow, the business will need to institute a bankruptcy proceeding, thereby triggering the automatic stay,[78] to thwart creditors seeking payment. Therefore, the business will likely need to file for bankruptcy before the BI litigation commences or resolves.

As such, businesses should be cognizant of the amount of debt they have accrued, regardless of any potential insurance proceeds. A small business debtor that has accrued $8,000,000 in debt, for example, will be ineligible for Subchapter V bankruptcy.[79] Thus, $1,000,000 in potential insurance proceeds, for example, does nothing help a small business that is currently breaching the $7,000,000 debt limitation imposed by Subchapter V. Regardless of the potential insurance proceeds, the debtor will nonetheless be ineligible for Subchapter V relief, unless the insurance proceeds are paid before the debtor files for bankruptcy. Additionally, small businesses should be aware of the CARES Act’s sunset provision that reverts the $7,500,000 debt limitation back to $2,725,650 on March 27, 2021.[80] Pending further Congressional action extending or increasing the debt limitation, debtors that currently breach the usual $2,725,650 debt limitation will have until March 27, 2021 to file for Subchapter V bankruptcy. Should these debtors bet their odds in obtaining BI insurance proceeds, they could miss the opportunity to file for bankruptcy under Subchapter V if they lose in their suit against the insurance company. They will also accrue even more debt through the lengthy insurance coverage litigation process.

Therefore, although the debtor ultimately decides whether to file for bankruptcy under Subchapter V,[81] the debtor should not rely on any potential BI insurance proceeds in making that decision. Doing so could cost the company even more money and could consequently remove it from Subchapter V eligibility. Furthermore, debtors must consider a potential dip in DIP lending when considering whether Subchapter V relief is a viable option.

Will DIP Financing Dip?

Once the parties initiate Chapter 11 proceedings, the debtor becomes a debtor in possession (“DIP”).[82] A DIP keeps possession and control of the company and its assets while undergoing reorganization.[83] Because the main goal of Chapter 11 bankruptcy is to keep the business afloat, DIPs typically continue operating the bankrupt business to generate income.[84]

Chapter 11 debtors take an average of sixteen months to restructure their debt.[85] During this time, they need financing in the form of liquid assets to continue operating the business.[86] This type of lending is called DIP financing.[87] The purpose of DIP financing is to allow a company “to raise capital to fund its operations as its bankruptcy case runs its course.”[88] Just when a debtor needs liquidity the most, at the start of a restructuring plan, however, lenders are often unwilling to offer loans due to the company’s financial unpredictability.[89] Thus, to entice lenders to help them through Chapter 11 bankruptcy, DIPs must provide the lenders with favorable financing terms.[90] The terms usually include priority over existing creditors and a premium interest rate, among others.[91] DIPs may seek to obtain financing from new lenders, or an existing creditor may lend money to the DIP in an attempt to increase the creditor’s priority, even if the creditor was previously unwilling to lend outside of the bankruptcy proceedings.[92] Although existing creditors may object to the DIP lender, the presiding court makes the ultimate decision whether to approve the financing.[93] Nonetheless, secured creditors may be weary of the DIP introducing a new creditor that would maintain equal or superior priority to the secured creditors.[94] Thus, to obtain DIP financing that would equate to equal or superior priority of any secured creditors, the DIP must either 1) obtain approval of the financing from the existing secured creditor(s); or 2) prove to the court that the existing creditor’s lien will be “adequately protected.”[95] Once the DIP receives the DIP financing, it can continue operating the business through the restructuring process.

DIP financing is crucial to the survival of a business in Chapter 11 bankruptcy that lacks liquidity. The impact of COVID-19, however, may tank DIPs’ abilities to secure credit from lenders. Indeed, as more companies declare bankruptcy due to the pandemic’s near-halt of the economy, the ability for every Chapter 11 debtor to obtain DIP financing grows grimmer. Lenders, like debtors, need funds to survive. DIP lenders simply may not be willing to finance bankrupt businesses – especially small businesses with little to no assets to be used as collateral.

Compare the current COVID-19 economic crisis with the financial crisis brought about by the Great Recession. From 2008 to 2010, over three million bankruptcies rocked the United States.[96] With them came “a drought of bankruptcy loans.”[97] A once multibillion-dollar lending market came to a screeching halt.[98] Some companies took months to find lenders that were willing to provide DIP financing.[99] Not only was DIP financing scarce, but it was also expensive.[100] Consequently, some debtors delayed filing for bankruptcy under Chapter 11.[101] Others that chose to file for Chapter 11 relief were forced to convert to Chapter 7 and liquidate their businesses because they could not maintain a steady cash flow during the restructuring process.[102] In essence, due to the lack of available funding and surplus in bankruptcies, companies that were able to secure and afford DIP financing were few and far between.

Now, in 2020, the COVID-19 crisis is poised to deliver an onslaught of bankruptcies that exceed the number of bankruptcies filed in the midst of the Great Recession.[103] Over the past several years, companies have borrowed historical levels of debt.[104] Combining the record level of debt with the COVID-19 business shutdowns results in estimates from the Federal Reserve that, over the next year, consumers and businesses will file between 200,000 and 1,000,000 bankruptcies.[105] Thus, similar to the lack of DIP lending during the Great Recession due to a tight lending market, the United States is positioned for another dip in DIP lending. Lenders may simply refuse to finance businesses that lack assets to use for collateral or that are unable to operate their businesses during the state shutdowns. Although DIP lenders are typically persuaded to finance bankrupt companies by “extraordinary protections and incentives,”[106] DIP financing is only possible upon consent of primed secured creditors or the court’s approval that the primed secured creditors’ interests will be adequately protected.[107] Courts may refuse to find that secured creditors’ interests will be adequately protected given the overwhelming amount of debt companies have accrued in the past several years, and the potential outcry for DIP financing that will come with a surge of bankruptcies post-pandemic. Without these certifications, the court will not approve the DIP financing, and the DIP lenders will likely refuse lending without any of the typical protections and incentives. Nonetheless, in an attempt to rebuild the global economy, courts may be willing to relax the “adequate protection” requirement for primed liens, therefore increasing the amount of DIP financing available to Chapter 11 debtors. Courts may opt for this option, if possible, to avoid conversion from Chapter 11 to Chapter 7. Indeed, companies that filed for Chapter 11 relief before or during the COVID-19 crisis are already converting to Chapter 7.[108] Too many conversions to Chapter 7, thereby liquidating businesses’ assets, could result in in even more catastrophic economic downturn.

The results of COVID-19 on DIP lending, and, indeed, the entirety of business objectives, remains to be determined until the crisis subsides. In the meantime, courts should look to minimize costs for both litigants and the government. Accordingly, courts should consider applicable precedent from other chapters of the Bankruptcy Code when presented with novel issues under the newly-enacted Subchapter V of Chapter 11.

Applying Chapter 12 and Chapter 13 Precedent as Guidance

Prior to Congress passing the SBRA, thereby creating Subchapter V, small businesses that filed for Chapter 11 relief were often “the least likely to reorganize successfully.”[109] This lack of success was due to the costly reorganization process that small businesses with little to no assets could rarely afford.[110] As a result, many small businesses were forced into the Chapter 7 liquidation process, without the ability to rehabilitate and continue operating the company.[111] Both the National Bankruptcy Conference and the American Bankruptcy Institute submitted recommendations to Congress to amend the Bankruptcy Code, which created a backdrop upon which Congress developed Subchapter V.[112]

The purpose of enacting Subchapter V in Chapter 11 of the Bankruptcy Code was to “streamline the bankruptcy process by which small businesses debtors reorganize and rehabilitate their financial affairs.”[113] In doing so, Congress included in Subchapter V the following three key features:

(1) [R]equiring the appointment of an individual to serve as the trustee in a chapter 11 case filed by a small business debtor, who would perform many of the same duties required of a chapter 12 trustee;

(2) [R]equiring such private trustee to monitor the debtor’s progress toward confirmation of a reorganization plan; and

(3) [A]uthorizing the court to confirm a plan over the objection of the debtor’s creditors, providing such plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.[114]

Since Congress’s implementation of Subchapter V, commentators have noted similarities between the subchapter and other chapters of the Bankruptcy Code – namely, Chapter 12 and Chapter 13.[115] The question remains, then, how bankruptcy courts will apply existing Chapter 12 and Chapter 13 precedent to any disputes arising under Subchapter V.[116] To further the purpose of Subchapter V in streamlining the Chapter 11 bankruptcy process, courts should apply applicable precedent from prior Chapter 12 and Chapter 13 cases when presented with novel issues under Subchapter V.

Understandably, some disputes will simply not be comparable to Chapter 12 and Chapter 13 cases. To be sure, Subchapter V is fundamentally different from other chapters of the Bankruptcy Code because it only applies to qualified debtors. Nonetheless, applying existing precedent in only applicable disputes – typically those involving trustee duties mirroring Chapter 12 and Chapter 13 – will weed out any disputes that are truly novel and unique to Subchapter V. It will also save the time and expense of litigation. Amidst the failing economy during the COVID-19 crisis, time and expenses are especially limited. Thus, by adopting existing case precedent from applicable Chapter 12 and Chapter 13 cases, both litigants and the courts will save the time and expense of drawn-out litigation and will be able to further the purpose of Subchapter V – streamlining the bankruptcy process.

Conclusion

Congress’s addition of Subchapter V in Chapter 11 of the Bankruptcy Code seemed to strike the balance between Chapter 7 and Chapter 11 for which commentators advocated since Congress’s passage of the BAPCPA in 2005.[117] When Subchapter V went into effect in February 2020, Congress did not anticipate that the United States economy, and indeed global commerce, would come to a sudden, screeching halt due to a global pandemic. The international COVID-19 crisis resulted in states across the country shutting down non-essential businesses for an undisclosed timeframe.[118] Due to thousands of mandated business closures, and, therefore, lack of cash flow, small businesses may not survive the shutdowns. As a result, commentators anticipate a “surge” of bankruptcies in the upcoming months.[119]

Importantly, small business owners forced into bankruptcy must be aware of several factors relevant to Subchapter V bankruptcy. Firstly, small business owners should be aware of the current debt limitation under Subchapter V. The CARES Act increased the debt limitation applicable to debtors under Subchapter V from $2,725,650 to $7,500,650 until March 27, 2020.[120] Nonetheless, businesses should be cognizant of all terms under any PPP loan they solicit. Failure to abide by all terms of the PPP loans could result in revoked loan forgiveness, thereby adding up to $10,000,000 of debt in addition to what the company already owed. Additionally, business owners should not rely upon any potential business interruption insurance proceeds to help them maintain a debt below the limitation of Subchapter V because BI claims may not be covered. Furthermore, by comparing the current economic crisis to that of the Great Recession, it can be surmised that DIP lenders may be few and far between. As such, debtors must be aware of the implication arising from the lack of DIP financing – namely, a potential for their Chapter 11 reorganization cases being converted to Chapter 7 liquidation. Accordingly, planning and timing of bankruptcy proceedings are crucial considerations for failing small businesses. To further the purpose of Subchapter V, bankruptcy courts should adopt any applicable precedent from existing Chapter 12 and Chapter 13 cases to new Subchapter V cases, thereby saving time and expense of litigation. While the exact implications of the COVID-19 crisis are unclear, business owners must be aware of all possible scenarios to protect their companies from liquidation and to maintain the global economy.

[1] Scripps Research Institute, COVID-19 coronavirus epidemic has a natural origin, ScienceDaily (Mar. 17, 2020), https://www.sciencedaily.com/releases/2020/03/200317175442.htm.

[2] WHO Director-General’s opening remarks at the media briefing on COVID-19 – 11 March 2020, World Health Org. (Mar. 11, 2020), available at https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020 [hereinafter Opening Remarks]; see also Situation Summary, Ctrs. for Disease Control & Prevention, https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/summary.html#background (last visited Apr. 25, 2020) (summarizing the outbreak of COVID-19).

[3] Opening Remarks, supra note 2.

[4] Fergal O’Brien, Global Economy Crashes on Mass Virus Business Shutdowns, Bloomberg https://www.bloomberg.com/news/articles/2020-03-24/europe-dragged-into-record-recession-in-battle-to-halt-virus (last updated on Mar. 24, 2020, 11:12 AM); see also Yuwa Hedrick-Wong, How To Stop The Global Economy From Plunging Into A Depression, Forbes (Apr. 10, 2020, 8:40 AM), https://www.forbes.com/sites/yuwahedrickwong/2020/04/10/how-to-stop-the-global-economy-from-plunging-into-a-depression/#13436af726fa.

[5] Mapping the worldwide spread of the coronavirus, Wash. Post, https://www.washingtonpost.com/graphics/2020/world/mapping-spread-new-coronavirus/ (last updated Apr. 25, 2020, 7:24 PM) (mapping cases of and deaths resulting from Coronavirus).

[6] Joe Fox et al., 75,254 people have died from coronavirus in the U.S., Wash. Post, https://www.washingtonpost.com/graphics/2020/national/coronavirus-us-cases-deaths/ (last updated May 7, 2020, 11:04 AM).

[7] See, e.g., Exec. Order No. N-33-20, Exec. Dep’t of the State of Cal. (Mar. 29, 2020), available at https://covid19.ca.gov/img/Executive-Order-N-33-20.pdf; Director’s Stay at Home Order, Ohio Dep’t of Health (Mar. 19, 2020), available at https://content.govdelivery.com/attachments/OHOOD/2020/03/22/file_attachments/1407840/Stay%20Home%20Order.pdf ; Order of the Governor of the Commonwealth of Pennsylvania for Individuals to Stay at Home, Commonwealth of Pa. Office of the Gov. (Apr. 1, 2020), available at https://www.governor.pa.gov/wp-content/uploads/2020/04/20200401-GOV-Statewide-Stay-at-Home-Order.pdf; see also Sarah Mervosh et al., See Which States and Cities Have Told Residents to Stay at Home, N.Y. Times, https://www.nytimes.com/interactive/2020/us/coronavirus-stay-at-home-order.html (last updated Apr. 20, 2020) (detailing which states and cities enacted stay-at-home orders). Essential businesses typically include, inter alia, healthcare, grocery stores, gas stations, and critical trades. Director’s Stay at Home Order, supra, at 5-7.

[8] Chris Arnold, America Closed: Thousands of Stores, Resorts, Theaters Shut Down, Nat’l Pub. Radio (Mar. 16, 2020, 6:51 PM), https://www.npr.org/2020/03/16/816398498/america-closed-thousands-of-stores-resorts-theaters-shut-down.

[9] 2018 Small Business Profile, U.S. Small Bus, Admin., at 1, available at https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf. As of 2018, the U.S. was comprised of 30.2 million small businesses that employed 58.9 million people, which was approximately 47.5 percent of the U.S. workers population. Id.

[10] Arnold, supra note 8; see also Amy E. Vulpio, New Subchapter V May be the Bankruptcy Lifeline Small Businesses Need to Survive COVID-19, White & Williams LLP https://www.whiteandwilliams.com/resources-alerts-New-Subchapter-V-May-be-the-Bankruptcy-Lifeline-Small-Businesses-Need-to-Survive-COVID-19.html (last updated Apr. 15, 2020).

[11] See Arnold, supra note 8.

[12] Id.

[13] Id. (quoting Karen Mills).

[14] Small Business Reorganization Act of 2019, Pub. L. No. 116-54, 133 Stat. 1079 (2019) (codified as amended at 11 U.S.C. §§ 1181-1195 (2020)).

[15] Zach Shelomith, INSIGHT: Small Businesses Get Break From Chapter 11 Burdens, Am. Bar Assoc. (March 5, 2020, 4:01 AM), https://news.bloomberglaw.com/bankruptcy-law/insight-small-businesses-get-break-from-chapter-11-burdens; see also Jessica K. Haskell & Nicholas Chmurski, CARES Act Temporarily Increases Debt Limitation for Small Business Debtors, O’Neil Cannon Hollman DeJong & Laing S.C. (Apr. 3, 2020), https://www.wilaw.com/cares-act-temporarily-increases-debt-limitation-for-small-business-debtors/; Jeffrey Barber, Small Business Reorganization Act of 2019 Goes into Effect February 2020, Nat’l L. Rev. (Oct. 3, 2019), https://www.natlawreview.com/article/small-business-reorganization-act-2019-goes-effect-february-2020.

[16] Barber, supra note 15.

[17] Lei Lei Wang Ekvall & Timothy Evanston, The Small Business Reorganization Act: Big Changes for Small Businesses, Am. Bar Assoc. (Feb. 14, 2020), https://www.americanbar.org/groups/business_law/publications/blt/2020/02/small-business-reorg/.

[18] H.R. Rep. No. 116-171, at 4 (2019), available at https://www.congress.gov/116/crpt/hrpt171/CRPT-116hrpt171.pdf.

[19] Shelomith, supra note 15.

[20] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No, 116-136 (2020).

[21] See The CARES Act: A Reference Guide, White & Williams, LLP, at 1, available at https://www.whiteandwilliams.com/assets/htmldocuments/The%20CARES%20Act.pdf (last updated Apr. 17, 2020).

[22] Id.; see also Jim Chappelow, The Great Recession, Investopedia, https://www.investopedia.com/terms/g/great-recession.asp (last updated Apr. 21, 2020).

[23] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (2020) at § 1102.

[24] Id. at §§ 1107(a)(5), 1110. Congress authorized the EIDL in the Coronavirus Preparedness and Response Supplemental Appropriations Act, which Congress enacted on March 6, 2020. Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, Pub. L. No. 116-123, 134 Stat. 146, 147 (2020).

[25] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (2020) at § 1113(a)(1)(A).

[26] The CARES Act: A Reference Guide, supra note 21, at 2. See id. at 2-5 for an explanation of, inter alia, eligibility requirements, loan terms, and how proceeds may be used.

[27] Paycheck Protection Program, U.S. Small Bus. Admin,, https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program (last visited Apr. 27, 2020); see also The CARES Act: A Reference Guide, supra note 21, at 2; 2018 Small Business Profile, U.S. Small Bus, Admin., at 1, available at https://www.sba.gov/sites/default/files/advocacy/2018-Small-Business-Profiles-US.pdf (noting that, as of 2018, U.S. small businesses employed 58.9 million workers, which counted for 47.5 percent of all U.S. workers). In April 2020, Congress passed a second measure that provided an additional $320 billion for the PPP. Victor Reklaitis, Trump signs into law $484 billion that replenishes coronavirus aid program for small businesses, MarketWatch (Apr. 24, 2020, 12:32 PM), https://www.marketwatch.com/story/house-set-to-pass-bill-that-replenishes-coronavirus-aid-program-for-small-businesses-2020-04-23.

[28] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (2020), at § 1112.

[29] Paycheck Protection Program, supra note 27.

[30] Paycheck Protection Program (PPP) Information Sheet: Borrowers, U.S. Dep’t of Treasury, https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf (last visited Apr. 29, 2020).

[31] The CARES Act: A Reference Guide, supra note 21, at 4.

[32] Id.

[33] Paycheck Protection Program, supra note 27; see also Paycheck Protection Program (PPP) Information Sheet: Borrowers, supra note 30.

[34] See Paul Davidson, Coronavirus PPP loans leave small firms confused, wary and rushing to secure cash to survive, USA Today, https://www.usatoday.com/story/money/usaandmain/2020/04/13/coronavirus-small-businesses-scramble-secure-federal-ppp-loans/5133984002/ (last updated Apr. 14, 2020, 7:37 AM); see also Ryan J. Udell & Adam Chelminiak, Are You Confused Yet? The SBA Issues Supplemental Guidance on Paycheck Protection Program Implementation, White & Williams LLP (Apr. 8, 2020), https://www.whiteandwilliams.com/resources-alerts-SBA-Issues-Supplemental-Guidance-on-Paycheck-Protection-Program-Implementation.html (explaining key components of the SBA’s Supplemental Guidance regarding PPP).

[35] Vulpio, supra note 10.

[36] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (2020) at § 1113(a)(5).

[37] Paycheck Protection Program Borrower Application Form, U.S. Small Bus. Admin., at 1 available at https://www.sba.gov/sites/default/files/2020-04/PPP%20Borrower%20Application%20Form.pdf.

[38] Id.

[39] 11 U.S.C. § 525(a) (2020) (banning the government from denying a license, permit, charter, franchise, or other similar grant based on the company’s status in bankruptcy or as a former bankrupt company); see, e.g., Hidalgo Cty. Emergency Serv. Found. v. Carranza et al., No. 2:20-ap-02006 (Bankr. S.D. Tex. filed Apr. 22, 2020) (granting a temporary restraining order disallowing the SBA to automatically deny a loan under the PPP solely because the loan applicant filed for Chapter 11 bankruptcy); Penobscot Valley Hosp. v. Carranza, No. 1:20-ap-01005 (Bankr. D. Me. filed Apr. 27, 2020) (granting a temporary restraining order against the SBA and finding that the SBA likely violated Section 525(a) of the Bankruptcy Code by denying PPP loans to debtors in bankruptcy); Cosi, Inc. v. U.S. Small Bus. Admin. et al., No. 1:20-ap-50591 (Bankr. D. Del. filed Apr. 28, 2020) (denying a temporary restraining order against the SBA and finding that nothing in the Bankruptcy Code disallows the SBA the ability to exclude bankrupt companies from the PPP).

[40] See NAIC Statement on Congressional Action Relating to COVID-19, Nat’l Assoc. of Ins. Comm’rs (Mar. 25, 2020), https://content.naic.org/article/statement_naic_statement_congressional_action_relating_covid_19.htm; see also Mark D. Plevin et al., INSIGHT: Companies May be Thwarted by These Business Interruption Defenses, Bloomberg Law (Apr. 13, 2020, 4:01 AM), https://www.bloomberglaw.com/document/X7BR6M6S000000?bna_news_filter=us-law-week&jcsearch=BNA%2520000001715585dc1ca9ff5f9da3350001#jcite.

[41] Christopher C. French, The Aftermath of Catastrophes: Valuing Business Interruption Insurance Losses, 30 Ga. St. U. L. Rev. 461, 469 (2014) [hereinafter The Aftermath of Catastrophes].

[42] Christopher C. French & Robert H. Jerry, Insurance Law and Practice: Cases, Materials, and Exercises at 698 (2018). Losses may also include “expenses the business would not have accrued but for the interruption.” Kevin Bandoian & Christina Orrico, INSIGHT: Business Interruption Insurance Wording Is Key to a Covid-19 Claim, Bloomberg Law (Apr. 10, 2020), https://www.bloomberglaw.com/product/blaw/document/X5S4UAL4000000?bna_news_filter=true&jcsearch=BNA%25200000017141bad73ea17953beb0d20001#jcite.

[43] French & Jerry, supra note 281, at 698.

[44] See The Aftermath of Catastrophes, supra note 41, at 463.

[45] Make Your Business Resilient, Fed. Emergency Mgmt Assoc., https://www.fema.gov/media-library-data/1441212988001-1aa7fa978c5f999ed088dcaa815cb8cd/3a_BusinessInfographic-1.pdf (last visited Apr. 28, 2020).

[46] Id.

[47] See NAIC Statement, supra note 40 (explaining that insurance policies typically do not cover communicable diseases, such as COVID-19).

[48] Eileen Gilligan, APCIA Releases New Business Interruption Analysis, Am. Prop. Cas. Ins. Assoc., Am. Prop. & Cas. Ins. Assoc. (Apr. 6, 2020), https://www.pciaa.net/pciwebsite/cms/content/viewpage?sitePageId=60052.

[49] Id.

[50] Jef Feeley & Katherine Chiglinsky, Litigation Builds Against Insurers Over Coronavirus Business Interruption, Ins. Journal (Apr. 8, 2020), https://www.insurancejournal.com/news/national/2020/04/08/563723.htm.

[51] See NAIC Statement, supra note 40 (explaining that insurance policies typically do not cover communicable diseases, such as COVID-19); see also Plevin et al., supra note 40 (discussing terms and defenses insurers may use to defend against BI claims for Coronavirus). But see Bandoian & Orrico, supra note 42 (explaining that the precise language of the specific insurance policy is essential in determining whether COVID-19 is covered under BI insurance policies).

[52] Common defenses include concealment, misrepresentations, warranties, conditions, and limitations or exclusions on coverage. See John F. Dobbyn & Christopher C. French, Insurance Law in a Nutshell, at 311-50 (5th ed. 2016); see also French & Jerry, supra note 42 at 270-47 (explaining common exclusions and insurer defenses).

[53] See, e.g., Laudenbach Periodontics & Dental Implants, Ltd. v. Liberty Mut. Ins. Grp. et al., No. 2:20-cv-01029 (E.D. Pa. filed Apr. 27, 2020); Big Onion Tavern Group, LLC et al. v. Soc. Ins., Inc., No. 1L20-cv-02005 (N.D. Ill. filed Mar. 27, 2020); Cajun Conti LLC v. Certain Underwriters at Lloyd’s London, No. 2020-02558 (La. Dist. Ct. filed Mar. 16, 2020); see also Evan Weinberger, Reed Smith, Pillsbury Gear Up for Coronavirus Insurance Fights, Bloomberg Law (Apr. 10, 2020), https://news.bloomberglaw.com/banking-law/reed-smith-pillsbury-gear-up-for-coronavirus-insurance-fights (anticipating a wave of insurance coverage litigation regarding COVID-19 and BI policies).

[54] See Christopher C. French, Understanding Insurance Policies as Non-Contracts: An Alternative Approach to Drafting and Construing These Unique Financial Instruments, 89 Temp. L. Rev. 535, 556 (2017) [hereinafter Understanding Insurance Policies as Non-Contracts] (explaining the doctrine of contra proferentem); see also Restatement (Second) of Contracts § 206 (Am. Law. Inst. 1981) (adopting the concept of contra proferentem).

[55] Ethan J. Leib & Steve Thel, Contra Proferentem and the Role of the Jury in Contract Interpretation, 87 Temp. L. Rev. 773, 774 n.4 (2015).

[56] See Understanding Insurance Policies as Non-Contracts, supra note 54, at 557.

[57] Id.

[58] See id. Interruption due to civil or military authority or loss of ingress/egress provisions are applicable if the government restricts business operations or prevents use of the facilities. Id. Currently, governments across the country have imposed stay-at-home orders restricting travel and business operations. See supra note 7 and accompanying text.

[59] Bandoian & Orrico, supra note 42; see also Business Interruption Insurance and COVID-19, Cong. Res. Serv. (March 2020), at 1, available at https://crsreports.congress.gov/product/pdf/IN/IN11295 (“If a property has become physically contaminated and uninhabitable due to coronavirus, there may be a basis to claim that a direct physical loss has occurred.”).

[60] BI insurance is a type of property insurance. French & Jerry, supra note 42, at 698. Like any property insurance, then, the insured must prove “direct physical injury” to the property in order to recover. Id. at 621.

[61] See, e.g., Cajun Conti LLC v. Certain Underwriters at Lloyd’s London, No. 2020-02558 (La. Dist. Ct. filed Mar. 16, 2020); see also Business Interruption Insurance and COVID-19, supra note 59, at 2; Bandoian & Orrico, supra note 42.

[62] See, e.g., Essex v. BloomSouth Flooring Corp., 562 F.3d 399 (1st Cir. 2009) (holding that a foul smell leaving a building uninhabitable constituted direct physical loss); Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 236 (3d. Cir. 2002) (finding that “if the presence of large quantities of asbestos in the air of a building is such as to make the structure uninhabitable and unusable, then there has been a distinct loss to its owner” thereby constituting “physical loss”); TRAVCO Ins. Co. v. Ward, 715 F.Supp.2d 699 (E.D. Va. 2010), aff’d, 504 F. App’x 251 (4th Cir. 2013) (ruling that direct physical loss occurred in a home that was uninhabitable due to leaking toxic gasses); Wester Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52 (Colo. 1968); Wakefern Food Corp. v. Liberty Mut. Fire Ins. Co., 968 A.2d 724 (N.J. Super. Ct. App. Div. 2009) (ruling that a property can suffer a physical loss, without a structural alteration, if the business loses its essential functionality); (finding a direct physical loss due to the structure filling with gasoline vapors, rendering the structure occupiable).

[63] See Gilligan, supra note 48; see also NAIC Statement, supra note 40.

[64] Gilligan, supra note 48; see also NAIC Statement, supra note 40.

[65] See, e.g., Universal Image Productions, Inc. v. Fed. Ins. Co., 475 Fed. App’x. 569 (6th Cir. 2012) (finding that no “direct physical loss” occurs when a foul odor keeps customers away from the business); Phoenix. Ins. Co. v. Infogroup, Inc., 147 F. Supp. 3d 815 (S.D. Iowa 2015) (ruling that a company that reduces its hours due to an anticipated physical loss cannot recover under its BI policy); Mama Jo’s, Inc. v. Sparta Ins. Co., No. 17-cv-23362-KMM (S.D. Fla. June 11, 2018) (holding that a nearby construction endeavor did not cause “direct physical loss” to a restaurant that remained open and paid more in cleaning fees due to cleaning the premises of the construction debris); White Mountain Cmty. Hosp. Inc. v. Hartford Cas. Ins. Co., No. 3:13-cv-8194 JWS (D. Ariz. Apr. 17, 2015) (ruling that a company is not entitled to loss of income due to a general decrease in business from wildfires affecting the community at large); Travelers Ins. Co. v. Eljer Mfg., Inc. 757 N.E.2d 481 (Ill. 2001) (ruling that a company that reduces its hours due to an anticipated physical loss cannot recover under its BI policy).

[66] Plevin et al., supra note 40.

[67] Complaint at ? 50, SA Hospitality Grp., LLC v. Hartford Fin. Servs. Grp., No. 1:20-cv-03258 (S.D.N.Y. Apr. 24, 2020) (emphasis added).

[68] See NAIC Statement, supra note 40.

[69] See, e.g., Motorists Mut. Ins. Co. v. Hardinger, 131 Fed. App’x 823, 827 (3d Cir. 2005) (explaining that parties tested the allegedly contaminated water to determine whether the water was contaminated with bacteria); Western Fire Ins. Co. v. First Presbyterian Church, 437 P.2d 52, 54 (Colo. 1968) (finding that tests were performed to determine whether flammable vapors were present in the facility); see also Plevin et al., supra note 40.

[70] Plevin et al., supra note 40.

[71] See generally Neeltje van Doremalen, et al., Aerosol and Surface Stability of SARS-CoV-2 as Compared with SARS-CoV-1, New Eng. J. Med. (2020), available at https://www.nejm.org/doi/full/10.1056/NEJMc2004973 (studying how long SARS-CoV-2 lasts in various surfaces).

[72] See id.; see also Plevin et al., supra note 40.

[73] See French & Jerry, supra note 42, at 698.

[74] Weinberger, supra note 53; see also Bandoian & Orrico, supra note 42.

[75] Weinberger, supra note 53.

[76] See NAIC Statement, supra note 40.

[77] See Administrative Order of the Chief Administrative Judge of the Courts, Essential Proceedings Administrative Order A0/78/20, N.Y. Unified Courts (Mar. 22, 2020), available at https://nycourts.gov/whatsnew/pdf/AO-78-2020.pdf; see also Federal Courts Respond to Covid-19, Bloomberg Law, https://public.flourish.studio/visualisation/1630764/embed (last updated May 7, 2020, 4:07 PM). In New York, essential claims include, inter alia, certain criminal matters, certain family adjudications, and certain housing matters. Essential Proceedings Administrative Order A0/78/20, supra, at Ex. A. See id. for a full listing of proceedings deemed essential in New York.

[78] See 11 U.S.C. § 362 (2020) (governing automatic stays). An automatic stay is “[a]n injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.” Bankruptcy Basics Glossary, U.S. Courts, https://www.uscourts.gov/educational-resources/educational-activities/bankruptcy-basics-glossary#content-for-n (last visited Apr. 18, 2020) (defining “automatic stay”).

[79] See 11 U.S.C. § 1182(1)(A) (2020) (setting the Subchapter V debt limitation at $7,500,000).

[80] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (2020) at § 1113(a)(5).

[81] 11 U.S.C. § 1189 (2020) (noting that only a debtor may file for bankruptcy under chapter Subchapter V; thus, creditors may not force the small business into involuntary bankruptcy).

[82] 11 U.S.C. § 1101 (2020).

[83] See Chapter 11 – Bankruptcy Basics, U.S. Courts, https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics (last visited Apr. 28, 2020); see also 11 U.S.C. §§ 1107, 1116, 1184, 1185 (2020).

[84] See 11 U.S.C. § 1107(a) (2020); see also Chapter 11 – Bankruptcy Basics, supra note 83.

[85] B. Espen Eckbo et al., Rent Extraction by Super-Priority Lenders, Harv. Law Sch. Bankr, Roundtable (Oct. 1, 2019), https://blogs.harvard.edu/bankruptcyroundtable/tag/dip-loans/.

[86] See id.; see also Robert L. Eisenbach III, DIP Financing: How Chapter 11’s Bankruptcy Loan Rules Can Be Used To Help A Business Access Liquidity, Cooley LLP (Nov. 5, 2013), https://bankruptcy.cooley.com/2013/11/articles/business-bankruptcy-issues/dip-financing-how-chapter-11s-bankruptcy-loan-rules-can-be-used-to-help-a-business-access-liquidity/.

[87] The amount of DIP financing “can range from tens of thousands to billions of dollars.” Marshall S. Huebner, Debtor-in-Possession Financing, Risk Mgmt Assessment J., Apr. 2005, at 30, available at https://www.davispolk.com/files/files/Publication/48334111-be66-424d-917b-368894b495cf/Preview/PublicationAttachment/acd1d2f6-4351-4874-bd30-3d2f4d2b5056/huebner.dip.article.2005.revised.pdf.

[88] Will Kenton, Debtor-in-Possession (DIP) Financing, Investopedia, https://www.investopedia.com/terms/d/debtorinpossessionfinancing.asp (last updated Mar. 13, 2020).

[89] See Eisenbach III, supra note 86; see also Huebner, supra note 87, at 30-31.

[90] See Eisenbach III, supra note 86.

[91] Id.; see also Kenton, supra note 88.

[92] Eisenbach III, supra note 86.

[93] Id. Creditors are more prone to objecting to loans proposed by insiders (i.e., an owner, investor, or other entity with connection to the company). Id. Insiders may be hesitant to become a DIP lender, however, because creditors or the trustee could “attempt to recharacterize the loan as an equity contribution or have the debt equitably subordinated – and therefore never repaid – in bankruptcy.” Id.

[94] The process by which new debt that supersedes the priority position of a secured creditor’s existing debt is called “priming.” Id.; see also Jason Fernando, Primed, Investopedia, https://www.investopedia.com/terms/p/primed.asp (last updated May 18, 2018).

[95] Eisenbach III, supra note 86; see also Huebner, supra note 87, at 31. A DIP must prove “adequate protection” under three scenarios: when the automatic stay is in effect, when it uses, sells, or leases a secured creditor’s collateral, and when it proposes to prime a secured creditor’s lien with an additional lien. 11 U.S.C. §§ 362(d), 363(e), 364(d) (2020). See 11 U.S.C. § 361 (2020) for ways a DIP can prove “adequate protection.”

[96] Jay Heflin, Pandemic likely to exceed Great Recession in number of bankruptcies, Wash. Exam’r (Apr. 13, 2020, 12:00 AM), https://www.washingtonexaminer.com/news/pandemic-likely-to-exceed-great-recession-in-number-of-bankruptcies.

[97] Emily Chasan & Caroline Humer, Bankruptcy financing seen more costly as wave hits, Reuters (Jan. 12, 2009, 10:22 PM), https://www.reuters.com/article/us-restructuring-loans/bankruptcy-financing-seen-more-costly-as-wave-hits-idUSTRE50B7KJ20090113; see also Jeffrey McCracken & Paul Glader, ‘DIP’ Loans Are Scarce, Complicating Bankruptcies, Wall Street Journal https://www.wsj.com/articles/SB122421475294443955 (last(updated Oct. 17, 2008, 12:01 AM).

[98] McCracken & Glader, supra note 97.

[99] Chasan & Humer, supra note 97.

[100] Id.; see also McCracken & Glader, supra note 97.

[101] Tight bankruptcy financing to hurt bondholders-report, Reuters (Nov. 10, 2008, 4:15 PM), https://www.reuters.com/article/dip-bondholders-creditsights/tight-bankruptcy-financing-to-hurt-bondholders-report-idUSN1047135620081110.

[102] See, e.g., Order Pursuant to Section 1112(a) of the Bankruptcy Code and Bankruptcy Rules 1017(f) and 1019 Converting Debtors’ Chapter 11 Cases to Cases Under Chapter 7 of the Bankruptcy Code, In re BB Liquidating Inc. et al., No. 1:10-bk-14997 (Bankr. S.D.N.Y. July 16, 2013) (granting the debtors’ motion to convert the case from Chapter 11 to Chapter 7); see also The Great Recession’s Biggest Bankruptcies: Where Are They Now?, Forbes (Aug. 10, 2011, 11:44 AM), https://www.forbes.com/sites/steveschaefer/2011/08/10/the-great-recessions-biggest-bankruptcies-where-are-they-now/#3fb0a6a34b7e (“For some companies, like Lehman Brothers, a Chapter 11 bankruptcy filing amounts to death.”).

[103] See Heflin, supra note 96.

[104] Tom Califano et al., COVID-19: The benefits of US chapter 11 relief in a time of economic crisis, DLA Piper (Mar. 19, 2020), https://www.dlapiper.com/en/us/insights/publications/2020/03/benefits-of-chapter-11-to-companies-in-crisis/; see also George Melloan, A Reckoning for Indebted Companies, Wall Street Journal (Mar. 16, 2020, 6:40 PM), https://www.wsj.com/articles/a-reckoning-for-indebted-companies-11584398416.

[105] See Heflin, supra note 96; see also Anita Sharpe, Record Bankruptcies Predicated in Next Year as Unemployment Soars, Bloomberg (Apr. 10, 2020, 5:00 AM), https://www.bloomberg.com/news/articles/2020-04-10/record-bankruptcies-predicted-in-next-year-as-unemployment-soars?sref=h5EZFUoq.

[106] Tom Califano et al., supra note 104; see also Eisenbach III, supra note 86. These protections and incentives include “attractive interest rates, super-priority liens and claims . . . and even the ability to “prime” other senior secured lenders under certain circumstances.” Tom Califano et al., supra note 104.

[107] See supra note 95 and accompanying text.

[108] See, e.g., Order (I) Converting Their Chapter 11 Cases to Cases Under Chapter 7, (II) Establishing a Deadline for Filing Final Chapter 11 Fee Applications and Setting a Hearing Thereone, and (III) Granting Related Relief, In re Art Van Furniture, LLC et al., No. 1:20-bk-10553 (Bankr. D. Del. Apr. 6, 2020) (granting motion to convert case from Chapter 11 to Chapter 7); see also Pappas, supra note 370.

[109] H.R. Rep. No. 116-171, at 3 (2019), available at https://www.congress.gov/116/crpt/hrpt171/CRPT-116hrpt171.pdf (quoting H.R. Rep. No. 109-31, at 3 (2005)); see also Susan Jensen-Conklin, Do Confirmed Chapter 11 Plans Consummate? The Results of a Study and Analysis of the Law, 97 Com. L.J. 297, 325 (1992) (finding that, of debtors that elected for Chapter 11 relief, only approximately 6.5 percent survived).

[110] See H.R. Rep. No. 116-171, at 3 (2019); see also Too Broke to Go Bankrupt? The Impact of The New US Trustee Fees on MidCap Bankruptcy Debtors, Am. Bar Assoc., (Mar. 29, 2019), https://www.americanbar.org/groups/business_law/resources/materials/2019/spring_materials/too_broke//.

[111] See H.R. Rep. No. 116-171, at 2-3 (2019); see also Ekvall & Evanston, supra note 17.

[112] H.R. Rep. No. 116-171, at 4 (2019).

[113] Id. at 1.

[114] Id. at 4.

[115] See Barber, supra note 15; see also Haskell & Chmurski, supra note 15.

[116] Barber, supra note 15.

[117] Ekvall & Evanston, supra note 17; see also H.R. Rep. No. 116-171, at 4 (2019).

[118] See Mervosh et al., supra note 7.

[119] Vulpio, supra note 10.

[120] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No. 116-136 (2020) at § 1113(a)(1)(A).