Each year, thousands of businesses in the United States file for bankruptcy for a variety of reasons. In some cases, the process provides breathing room from creditor payment demands, buying more time to reorganize the enterprise into a more economically feasible structure for the future. In other cases, bankruptcy is a way to take what’s left of a failing entity and fairly distribute remaining assets to creditors.
With COVID-19 dramatically disrupting life and business as we know it, state mandated stay-at-home orders and related business shutdowns have caused bankruptcy filings to spike — a trend that will likely continue for the foreseeable future.
While some businesses have been quick to adapt and change trajectory, other entities have been slow to find alternate ways of countering our new reality. Let’s take a look at the numbers.
California was the first state to mandate a stay-at-home order on March 19, 2020; a total of 32 states issued stay-at-home orders by the end of March. See below for a timeline of state reactions:
Source: KFF, State and Data and Policy Actions to Address Coronavirus.
While many states are now beginning to “reopen their doors” — and in spite of the CARES Act’s best efforts to provide financial life support for businesses affected by the pandemic — the resulting impact from the closures can be clearly seen in the surge of recent Chapter 11 bankruptcy filings, as noted below.
Source: Nationwide Research Company – United States Bankruptcy Chapter 11 filings.
Through May 2020, Chapter 11 filings have continued to increase in the most vulnerable sectors affected by the state mandated closures. In analyzing the data of Chapter 11 filings, beginning in April we have seen a significant shift in the following industries:
|
Industry |
Jan-March |
April-May |
Increase |
% Increase |
|---|---|---|---|---|
|
Airline/Airline Parts/Services |
6 |
123 |
117 |
1950.0% |
|
Telecommunications/Cable |
23 |
141 |
118 |
513.0% |
|
Retail |
70 |
147 |
77 |
110.0% |
|
Business Services |
35 |
72 |
37 |
105.7% |
|
Healthcare |
106 |
175 |
69 |
65.1% |
|
Transportation |
43 |
60 |
17 |
39.5% |
|
Restaurant, Food & Beverage |
153 |
178 |
25 |
16.3% |
|
All Other |
1,196 |
436 |
(760) |
N/A |
|
Total |
1,632 |
1,332 |
(300) |
N/A |
Source: Nationwide Research Company – United States Bankruptcy Chapter 11 filings
As depicted above, the airline, telecommunications/cable and retail industries are currently showing the most strain since the announcement of state mandated business closures. The full influence of the shutdown on these and other industries continues to evolve. It’s imperative for business leaders to remain agile and embrace change to avoid becoming another Chapter 11 reorganization statistic, as we expect the current trend of a weakened economy and high unemployment rates to lead to other financially strained casualties in the future.
Contact Andy Jordan or Josh Lefcowitz to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.