Small and large businesses have struggled very hard to survive the brunt of the COVID-19 pandemic. Be it North America, Europe, or the Far East. The pandemic has hit businesses globally at a massive scale, particularly impacting SMEs significantly. The global pandemic has led many companies into severe debt.
With the business pace slowing down and revenue taking a step down, hundreds of thousands of businesses filed for bankruptcy or filed for closure themselves in the last 15 months.
According to the Wall Street Journal, over 200,000 small and medium-sized businesses were closed during the COVID-19 lockdown, a number that experts have suggested to be far better than what they initially suspected.
The most complicated businesses to take the hit include entertainment and service-driven companies such as restaurants, theaters, cinemas, and retail shopping. While online shopping platforms like Amazon, e-bay & Flipkart, etc., and online food ordering had already taken a massive toll on the retail and restaurant industry, the pandemic only led to further consumer demand, reduced spending, and social distancing SOPs being mandated for businesses to hit the companies hard. From Deans and Deluca to Hertz Car Rentals and CMX Cinemas, many major companies have filed for bankruptcy recently due to the impact of the Covid-19 pandemic.
But those are all gigantic companies with enormous cash to settle down unpaid debts and creditor loans. If you, however, are a small business owner and your revenue generation has taken a plunge, here are your top business insolvency options to get you out of debt.
Settle Out of the Courts
If you have run out of business and can’t figure out a way to pay off the debts of your creditors, it’s about time you reevaluate your decisions. Try working a solution out of the court. Liquefy any company assets like infrastructural components, brand name, & data, etc. Instead of filing for bankruptcy through court, discuss your situation with your creditors and give them at least half the minimum amount you owe them. Settling out of court can benefit both you and the creditor, and they can get some of the money owed to them. Otherwise, your creditors might not get a single penny. To settle out of court, you must have cash or assets that you can quickly liquefy.
File for Bankruptcy
If your business accounts have completely drained, you can file for Chapter 7, Chapter 11, or Chapter 13 bankruptcy. With Chapter 7 bankruptcy, any assets not exempted by the state laws are sold to pay off the creditors. Whatever debts remain will be wiped out in the end. In Chapter 13 bankruptcy, you can make repayments in 3 to 5 years. You don’t lose any property; your creditors also get their money back. Chapter 11 bankruptcy is more of an organizational restructuring where you don’t completely shut the business down. But instead, you can borrow new money from a different creditor.
The bankruptcy option usually works better for a Limited Liability Company (LLC) as the owner cannot pay creditors by selling personal assets. If you have signed personal guarantees to your creditors, even bankruptcy won’t help you keep your other properties or assets.
Another thing that can go down while filing for bankruptcy is that your creditor can go to court and sue you for leading the business to losses. Then you might also have to pay off the debts.
Negotiate Deals on Your Business Debts
You can negotiate deals with them if you can’t pay your creditors the total amount. You can be done out of court directly with your creditors. You can discuss paying partially or in long-term installments. While negotiating these deals, prioritize your debts first and settle the ones that can eventually make you personally liable if you can’t pay them in time.
Conclusion
In conclusion, the global repercussions of the COVID–19 pandemic have inflicted significant hardships on businesses, both large and small, with SMEs facing substantial challenges. The economic downturn, combined with diminished consumer demand and social distancing measures, has resulted in the closure of hundreds of thousands of businesses globally, particularly affecting sectors like entertainment and services.
Major companies have filed for bankruptcy, underscoring the severity of the crisis. Small business owners grappling with declining revenues are advised to consider options such as settling out of court, engaging in negotiations with creditors, or filing for bankruptcy under different chapters. Recognizing the potential legal ramifications and personal liabilities associated with these options is crucial. Navigating these complexities requires careful evaluation and strategic decision-making to mitigate the pandemic’s impact on small enterprises.
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