Arguments for the Bankruptcy Code revision during COVID-19 in the USA
Many countries around the world have taken steps to overcome the economic consequences of the COVID-19 pandemic. Experts differently assess both the measures already taken and those that should be applied in order to get ready for the long-term crisis in the economy. It is recognized that financial aid plays an important role in these processes, but the use of the bankruptcy mechanisms should also be taken into account.
In the USA the Congress took unprecedented step to respond to the pandemic: the CARES Act provides multi-trillion-dollar emergency aid to the consumers and businesses. The measures envisaged in this Act are critically important; emergency assistance allows the millions of consumers and companies.
While there are observations in media criticising the government for not taking into account the advantages that bankruptcy law during pandemic, the commentators say that there is a system in place that effectively tackles the problems that businesses face during this difficult time: this system is bankruptcy. They argue that a proper infrastructure of debts solutions is more important rather than providing financial assistance. A strategy to provide relief and stimulus to people and businesses in distress should be the main roadmap for further bankruptcy law developments under the current circumstances.
Insolvency experts note that even though the CARES Act expands small business’s access to bankruptcy courts, improvement of the bankruptcy system is more preferable than the government support. American bankruptcy system now is one of the best in the world that provides an effective framework for reorganizing distressed businesses. The system is capable to solve the problems of both small businesses and multinational firms. Lawyers, judges, consultants and the whole bankruptcy judiciary are ready to work together to overcome consequences of the economic crisis.
For example, in a bankruptcy case a person may find additional sources and new funding for continuing on-going business. Bankruptcy judges may observe the process of business reorganization and check that employees and creditors are treated fairly. The bankruptcy law contains a detailed restructuring procedure, it forces companies to reconsider the companies’ activities and take good care of their finance.
The supporters of the Bankruptcy Code revision wrote a letter to the Congress about the need to increase the capacity of the bankruptcy infrastructure and raise the funding of the bankruptcy courts system. They believe that existing bankruptcy system may help not only debtors but entire industries to go through the period of uncertainty created by the COVID-19 pandemic.
The abovementioned arguments in support of enhancing the bankruptcy law remedies can be used in many countries, including Ukraine, to speed-up adaptation of Ukrainian Bankruptcy Code to new reality.
Oleksandr Biryukov, Counsel, LCF Law Group