COVID-19 has undoubtedly affected every person and business worldwide. In New York, restaurants and other businesses have felt devastating effects due to executive orders limiting business operations. It’s no secret that restaurants, nightlife, and other businesses have always thrived in New York. According to CBRE, in 2018, almost 25% of every dollar was spent on food and beverage nationwide. New Yorkers spend 130% more on food outside the home, including take-out than the rest of the U.S., averaging $8,082 spent per year on food outside the home, $4,570 per year more than the national average. According to the National Restaurant Association, in 2018, New York’s estimated restaurant sales were $51.6 billion, and in 2019, restaurant and foodservice jobs made up 9% of employment in New York.
However, since mid-March, New York’s once-thriving industry has completely changed as a result of COVID-19. In his executive order dated March 16, 2020, Governor Cuomo ordered that all restaurants and bars in New York state were to close on-premise operations until further notice and only serve customers food and beverage through take-out and delivery.
In April 2020, the National Restaurant Association surveyed over 6,500 restaurants nationwide. The Restaurant Industry Impact Survey shows that the industry lost over 30 billion dollars in March and over 50 billion dollars in April. Since the outbreak of COVID-19 began, the industry has laid off over 8 million restaurant employees, and 4 in 10 restaurants have been closed. In New York, the restaurant industry has lost $1.9 billion in sales and 250,000 jobs in March alone. These numbers are projected to increase as stay at home orders continue to be in effect.
Many restaurants and other businesses have applied for loans, such as the Paycheck Protection Program (PPP). According to the Small Business Administration (SBA), “the Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.” While the SBA may forgive up to the full amount of the loan, certain conditions must be met to receive this forgiveness. For the SBA to forgive the loan, at least 75% of the loan must be used on payroll costs. These conditions may present an issue for many restaurants and businesses because many of these businesses are closed indefinitely and would not meet the criteria of using 75% of the loan proceeds towards payroll costs.
Bankruptcy as an Option
Restaurants and businesses may also want to consider filing for bankruptcy. Bankruptcy does not mean that a business has failed—bankruptcy can be a helpful tool that many businesses can use to reorganize. Bankruptcy may benefit restaurants and businesses in various ways. Filing for bankruptcy triggers an automatic stay in which creditors may not take action to collect debts and repossess property. The filing would also stay evictions, foreclosures, and utility shutoffs. Certain dischargeable debts may also be discharged as a result of filing for bankruptcy.
Chapter 11 bankruptcies have historically been intended for large businesses due to their lengthy and costly nature. However, a newly enacted amendment to Chapter 11, the Small Business Reorganization Act (SBRA), could be a beneficial option for many small businesses.
The process for filing under the SBRA is faster and cheaper than regular Chapter 11 cases. It allows specific debtors to retain control over their operations with the help of an appointed trustee who ensures reorganization progress.
Although Chapter 11 bankruptcy may help many businesses survive the COVID-19 crisis, the bankruptcy court and trustee continue to oversee businesses that choose to file for bankruptcy. The business must comply with various requirements before being approved by the bankruptcy court. While in bankruptcy, the business must obtain the bankruptcy court’s approval for all non-ordinary business transactions and must adhere to the trustee’s monthly reporting requirements.
At Koutsoudakis & Iakovou Law Group PLLC, we are committed to helping restaurants and businesses navigate this difficult time. Our attorneys have proudly represented members of New York’s business community for over a decade. While laws are changing rapidly, with our expertise and experience, we are confident that our clients are in good hands. Our mission is always to advise our clients towards their respective goals. Whether it’s filing for bankruptcy or finding other creative solutions to ensure our clients’ successes, we will continue to guide our clients to make the best decision for their businesses.