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On February 19, 2020, the Small Business Reorganization Act (the “SBRA”) went into effect, shortly preceding the unprecedented blow to the global economy caused by the coronavirus (COVID-19) pandemic. The coronavirus, as well as government regulations to control the spread of the virus, have forced both public and private enterprises to discontinue operations, shut down facilities, and in some cases have caused companies to close their doors permanently. Thus, businesses, particularly small businesses, are now struggling and unable to pay their creditors, and will need to rely heavily on the SBRA or other alternatives to bankruptcy in order to survive in these uncertain times. This article will discuss in detail what the SBRA is and its benefits for small businesses, the related Coronavirus Aid, Relief, and Economic Security Act, as well as several alternatives to bankruptcy that could prove to be more affordable and efficient for small businesses.

I. What is the Small Business Reorganization Act?

The SBRA was signed into law on August 23, 2019 and was intended to simplify the Chapter 11 bankruptcy process and offer new methods for small businesses to successfully reorganize. Prior to the SBRA, the primary options for struggling small businesses filing bankruptcy were limited to either Chapter 7 or Chapter 11, both of which have their drawbacks. A Chapter 7 bankruptcy is less costly, but involves the debtor’s assets being liquidated by a trustee to pay creditors, rendering the business unable to survive and retain control of its operations. Conversely, a Chapter 11 bankruptcy permits the debtor to retain control of its operations and restructure its debts through a court-approved plan, but the extensive court oversight and stringent requirements associated therewith can be too expensive for small businesses.

No business, neither big nor small, has proven to be immune to the rapidly increasing threat of the coronavirus (COVID-19) that has significantly disrupted commercial operations all over the globe. In response to this pandemic, public and private enterprises have implemented procedures to slow the spread of the coronavirus, including closing facilities and ceasing operations. As a result, businesses are now evaluating their options concerning performance of their contracts. Accordingly, it is critical for these businesses to be aware of the various defenses available to potentially excuse nonperformance of their contractual obligations in these uncertain times. One of these defenses is to invoke a force majeure clause contained in a contract.

A force majeure clause in Florida is a standard contractual clause that permits parties to allocate the risk of loss if performance becomes impossible or impracticable due to “force majeure events,” such as acts of God, hurricanes, earthquakes, epidemics, terrorism, government acts, labor strikes, and lock-outs, among other things. The Florida Supreme Court, in holding that a hurricane constituted and act of God excusing a party’s performance under a contract, defined such an act as follows:

An act of God, such as will excuse nonperformance of a legal contract, must be an act or occurrence so extraordinary and unprecedented that human foresight could not foresee or guard against it, and the effect of which could not be prevented or avoid by the exercise of reasonable prudence, diligence, and care or by the use of those means which the situation of the party renders it reasonable that he should employ.[1]

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