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As most of the United States remains on lockdown, many businesses are still struggling to stay afloat. Even though the vaccine is slowly being rolled out, that won’t save businesses that have fought to remain solvent for an entire year.
However, the same pandemic causing businesses to close their doors could also make bankruptcies more difficult and lead to delayed filings. Will the proposed relief package be enough, or is it just another bandage on a hemorrhaging economy?
It’s no secret that the government-mandated store closures and stay-at-home orders in effect are ravaging the economy.
Sure, public health is a shared responsibility. And now, many cases have been reported in every state and the District of Columbia. That means that communities, businesses, and individuals should take measures to reduce the spread of the novel coronavirus.
The Centers for Disease Control and Prevention (CDC) has issued advice on how families and schools can plan for and respond. But perhaps more importantly, the CDC has also issued a guide for employers.
The CDC’s recommendations include actively encouraging sick employees to stay home, establishing flexible policies that permit employees to stay home to care for themselves or family members, and instituting respiratory etiquette and hand hygiene.
Even with those guidelines in place, government officials have ordered many businesses to remain closed. We have never shut down the US economy to the extent it is shuttered now.
J.Crew became the first national retailer to file for bankruptcy amid the crisis. And while experts agree that J.Crew certainly won’t be the last, they also say that many retailers are likely holding off filing until they are even able to make plans for the stores they need to close during bankruptcy.
With non-essential businesses being so limited by government officials, and shoppers being nervous about visiting open stores, even closing sales could be much more difficult to hold.
In other words, “A lot of companies are on hold, because you can’t get the money you need coming in from liquidation sales,” says Reshmi Basu, a retail bankruptcy expert at Debtwire.
“We probably would have seen more file by now if stores were open,” said Basu. He said they’re seeing companies engage bankruptcy advisors, but it’s not an optimal time to actually file.
Of course, in a regular economy, filing for bankruptcy doesn’t always have to be a death sentence. Companies can use it to shed debt and other liabilities, and come out as more efficient and more profitable.
But without those important store closing sales, companies are at a standstill. And in fact, it could be costing them even more.
According to Matthew Katz, managing partner at SSA & Co., “Historically, the store closing sales are pretty important. The longer the [closing sales] take, and more aged the merchandise gets, the less the value. That value is what the lenders are looking at.”
Unfortunately for companies who have been forced to close their doors, they’re losing value quickly.
On top of that, a company only has 180 days to fight to stay alive. After those 180 days, a company’s creditors can push the court to halt their efforts and start the process of liquidation. But what will companies do during bankruptcy, if their merchandise is already deemed valueless?
