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MAINE: An Introduction to Bankruptcy/Restructuring

Contributors:
Roma N. Desai
Adam Prescott
Kaitlyn Husar
Kyle D. Smith
Letson Douglass Boots
Louis Kornreich
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Bernstein Shur: Maine Business Restructuring and Insolvency

MAINE: An Introduction to Restructuring and Insolvency
By: Robert J. Keach, D. Sam Anderson, Lindsay Zahradka Milne, Adam Prescott, Kaitlyn Husar, Kyle D. Smith, Letson Douglass Boots, Roma Desai, and Louis Kornreich

Maine Chapter 11 filings made up a tiny share of all bankruptcy filings in the state during the past decade, but recent economic upheaval and changes that make Chapter 11 protections more affordable to small businesses are expected to increase the volume of restructuring cases moving forward.

Between 2011 and 2020, 19,889 bankruptcy cases were filed in Maine and, of the total number of cases filed, 172 were originally filed under Chapter 11 of the bankruptcy code. Chief Judge Peter Cary and Judge Michael Fagone preside over bankruptcy cases in Maine and cases are filed in either Portland or Bangor.

Throughout 2021, and likely in the years to come, Maine businesses and individuals will likely continue to experience the economic impacts of the coronavirus pandemic. According to statistics published by the U.S. Small Business Administration, Maine has 149,335 small businesses, which account for 99% of all businesses based in “Vacationland” (a state nickname and an indicator of tourism’s economic importance). Accordingly, the passage of the Small Business and Reorganization Act of 2019 (the “SBRA”) should have a long-lasting and significant impact on restructuring and insolvency law in the state. As direct government economic aid programs are curtailed and stay-at-home orders are lifted, small businesses in Maine are expected to more frequently utilize the benefits of the SBRA as important Maine industries, such as hospitality and healthcare, experience economic distress.

A. The Small Business and Reorganization Act of 2019 

The passage of the SBRA ushered in significant changes to Chapter 11 practice for eligible small business debtors. The SBRA went into effect in February 2020, on the eve of many state and city mandated stay-at-home orders. The most notable benefits for small business are the simplified case management procedures, improved confirmation rights, and a speedier process to reduce costs and make Chapter 11 more effective and efficient.

In its original form, the SBRA was limited to businesses with total debt of not more than $2,725,625. However, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which passed in March 2020, increased the debt limit under the SBRA to $7,500,000, initially through March 27, 2021. In March 2020, the COVID-19 Bankruptcy Relief Extension Act extended the higher debt ceiling through March 27, 2022. The SBRA also eliminates some costly aspects of Chapter 11, including quarterly U.S. Trustee fees and the requirement to appoint an official unsecured creditors’ committee. Given these (and other) benefits, small businesses in Maine considering in-court restructuring should reach out to qualified Chapter 11 practitioners to discuss this option while the higher debt limit remains in effect.

B. Hospitality 

COVID-19 has created an unprecedented and unexpected financial crisis for businesses in the service and hospitality industry nationally, and particularly in “Vacationland.” In November 2020, the State of Maine announced an economic recovery grant program, supported by $40 million in Federal CARES Act Coronavirus Relief Funds, to support Maine’s tourism, hospitality, and retail small businesses. However, some hospitality groups in the state have suggested that additional economic relief may be necessary to support hospitality businesses in the state as travel restrictions are lifted. According to recent reporting, more than 20 restaurants permanently ceased operations since the start of the COVID-19 pandemic. In the absence of additional economic relief, it is expected that more businesses will either shut their doors or will need to reorganize in Chapter 11.

C. Healthcare 

Given the geography and population, many Mainers receive primary care at rural healthcare facilities. As of January 2021, Maine had sixteen (16) Critical Access Hospitals, thirty-seven (37) Rural Health Clinics, eighty-four (84) Federally Qualified Health Center sites located outside of urban areas, and nine (9) short-term hospitals located outside of urban areas. In recent years, a number of rural and small hospitals and healthcare providers have filed for Chapter 11 relief in Maine and New England. The continued operations and solvency of rural healthcare providers have significant impacts on community health. For example, research suggests that increased distances to emergency rooms correlate with worse health outcomes. These providers face other headwinds, as rural hospital patients more often have no healthcare insurance or are underinsured and use emergency room services in lieu of other more cost-effective primary care. Many rural healthcare providers are required to treat these patients, often with no reimbursement, putting significant strain on their financial health. Additionally, Medicare and Medicaid reimbursement margins have fallen in recent years, so even reimbursement through these programs has resulted in reduced income. It is expected that restructuring in the healthcare industry, particularly for rural providers, will continue for the foreseeable future.

D. Conclusion  

The current economic fallout from COVID-19 is likely to fuel corporate and individual restructurings and liquidations in Maine for years to come, and many of the long-term economic consequences remain unknown. Bankruptcy professionals should be prepared to assist smaller businesses across a wider range of industries to reorganize and rebuild economically viable businesses, including taking advantage of the tools offered by the SBRA.