Sunday, May 02, 2021

Restaurants, Restaurant Revitalization Fund & Bankruptcy

 


New York City restaurants have been hurt by the mandatory closings, reduced operating hours, and outdoor dining requirements imposed by New York State and New York City as a result of the virus.

Many restaurants have closed or filed for bankruptcy protection. However, for those that remain open or continue to operate, there may now be some relief thanks to the American Rescue Plan Act, which established the Restaurant Revitalization Fund to provide funding support to restaurants and other eligible businesses. 

Awards are based on losses incurred as a consequence of the pandemic, calculated as the difference between 2019 and 2020 receipts, less other federal assistance.

Restaurants participating in this program can receive up to $10 million per business in compensation for pandemic-related revenue losses, up to a maximum of $5 million per physical location. 

Recipients are not required to repay the funding as long as funds are used for eligible uses no later than March 11, 2023.

Who can apply for this relief? According to the SBA, eligible entities who have experienced pandemic-related revenue loss include:

Restaurants

Food stands, food trucks, food carts

Caterers

Bars, saloons, lounges, taverns

Snack and nonalcoholic beverage bars

Bakeries (onsite sales to the public comprise at least 33% of gross receipts)

Brewpubs, tasting rooms, taprooms (onsite sales to the public comprise at least 33% of gross receipts)

Breweries and/or microbreweries (onsite sales to the public comprise at least 33% of gross receipts)

Wineries and distilleries (onsite sales to the public comprise at least 33% of gross receipts)

Inns (onsite sales of food and beverage to the public comprise at least 33% of gross receipts)

Licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products

The above requirements and how to apply can be found at 

https://www.sba.gov/funding-programs/loans/covid-19-relief-options/restaurant-revitalization-fund

For restaurants that remain open and want a second chance at business, the RTF can be a lifeline.

The program should reduce the number of restaurants that would have had to close or declare bankruptcy in the future.

In addition, this program may give restaurants leverage to renegotiate leases and/or good guy guarantees they previously granted to landlords.

The program probably will not help guarantors of leases who have closed and been sued by their landlord. 

Jim Shenwick   212 541 6224 jshenwick@gmail.com




Wednesday, April 14, 2021

Preference Law Changes under Subsection 547(j) of the Bankruptcy Code



A Bankruptcy Trustee may not recover payments made to a landlord concerning commercial rent arrears or to a supplier, on or after March 13, 2020, resulting from workouts before the bankruptcy filing,  under new Section 547(j) of the Bankruptcy Code.  

These changes were made pursuant to the Consolidated Appropriations Act of 2021. 

Congress made these changes to the bankruptcy code in an effort to encourage commercial landlords and suppliers to engage in workouts with tenants and customers due to the pandemic, by mandating that these payments would not be deemed preferential, if they were made after March 13, 2020. 

The new law will remain in effect for two years, ending on December 27, 2022. 

These changes to the law will prevent Chapter 7 bankruptcy trustees from commencing preference actions against commercial tenants or suppliers that meet the above requirements of the law.

My Law Firm has been involved in many workouts where our clients have raised the issue of whether accommodations given to debtor(s) can be recovered by bankruptcy trustees if those debtors later file for Chapter 7 bankruptcy. 

Although the bankruptcy code did provide defenses before the law change, such as the ordinary course of business and/or the new value exception to a preference, these law changes now provide certainty against preference actions in these types of workouts.

If you have questions regarding preference actions, you should contact Jim Shenwick at (212) 541-6224 or jshenwick@gmail.com to discuss the facts or strategies involved in those cases. 



 

 

Thursday, April 08, 2021

Drivers Sue Over Sky-High NYC Taxi License Costs



This article was first reported at Courthousenews. The url is https://www.courthousenews.com/drivers-sue-over-sky-high-nyc-taxi-license-costs/


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BROOKLYN (CN) — Taxi cab drivers are seeking more than $2.5 billion from the New York City Taxi & Limousine Commission, saying they paid artificially inflated prices for their taxi medallions, collectively losing hundreds of millions as a result.




The class action RICO suit, filed Tuesday in the Eastern District of New York, accuses the TLC of running a 13-year scheme to defraud those who bought medallions, which are the metal plates required for taxi drivers to work legitimately.




New York City made $855 million from auctioning off medallions and charging a 5% transfer tax on each transaction, the 105-page complaint says.




Because of the scheme, prices rose drastically under former New York City Mayor Michael Bloomberg, a named defendant in the suit. Between 2004 and 2014, costs jumped from $200,000 in 2001 to more than $1 million in early 2014.




The sky-high prices, drivers were reassured, were worthwhile. Commission representatives told them that the medallions were as “good as gold,” the suit claims, and that the purchase was secure because TLC has a “monopoly” over taxis in New York.




The first named plaintiff, Alec Soybel, says that TLC Chief Executive Officer Matthew Daus had told him that buying a medallion was a “once-in-a-lifetime opportunity” to become a middle-class American and enjoy a “worry-free retirement.”




“Daus further stated that purchasing a medallion was ‘what the American dream is all about,’” the suit says.




The suit further alleges that TLC was aware that inflated prices were plunging drivers underwater.




According to the suit, an internal 2010 report by a TLC policy analyst found that medallion owners were barely earning enough to pay for their medallion loans and operating costs.




The report estimated that a driver would have to earn more than $91,000 annually to service a 15-year mortgage on the badge, plus costs.




“Thus, by 2010, it was already clear that medallions were grossly inflated, and that medallion loans at such inflated prices were unsustainable,” the complaint reads. But TLC did not release that report publicly until June 2019.




Now, drivers say they are at a loss. Soybel is “saddled with a suffocating debt that he has no way of ever paying off,” according to the complaint.




Last year, New York Attorney General Letitia James launched an investigation of the TLC, accusing the commission of charging inflated prices and forcing drivers who bought them to clock obscene hours to make ends meet.




“What’s worse is that the TLC knew their actions were affecting some of the city’s most financially exposed immigrant families,” the attorney general said at the time.




James dropped the matter in February of this year, saying that a lawsuit could take years, and that a bailout for the drivers would be a better option. State legislators have also discussed a potential bailout. The drivers are picking up where she left off.




“Our lawsuit seeks to finish the job that AG James started,” said Jon Norinsberg, attorney for the taxi drivers, in an email to Courthouse News.




Norinsberg said the attorney general “did a great job exposing the fraudulent and deceptive practices engaged in by the TLC and City of New York,” and that the plaintiffs’ own investigation confirmed and expanded upon those findings.




“We are seeking to recover full restitution for all medallion owners, many of whom owe hundreds of thousands of dollars because of TLC’s fraudulent scheme,” Norinsberg said, “which directly led to the collapse of the medallion market.”




Neither the TLC nor New York City’s legal department immediately responded to requests for comment on Tuesday afternoon.

Tuesday, March 30, 2021

The Bankruptcy Chapter 11 Subchapter V debt limit of $7,500,000 has been extended for 1 more year to March 2022

The Bankruptcy Chapter 11 Subchapter V debt limit of $7,500,000 has been extended for 1 more year to March 2022. The House passed a bill, which was signed by President Biden this week. Any clients, attorneys or accountants who have questions about Subchapter V Bankruptcy should contact Jim Shenwick 212 541 6224  jshenwick@gmail.com


Friday, March 19, 2021

Client Feedback regarding services provided by Shenwick & Associates in a Chapter 7 Bankruptcy Filing March 19, 2021

" Thank you so much.

What a journey.

It was a pleasure to have you as my attorney!!

Thank you thank you thank you.

 Best,

 Susan"

Thursday, March 18, 2021

Subchapter V Chapter 11 Debt Limit of $7,500,000 extend for 1 more year to March 27, 2022 Based on House Vote-read post below


In accordance with a bill recently passed by the House, the Chapter 11, Subchapter V Debt Increase from $2,700,00 to $7,500,000 has been extended for another year to March 27, 2022. It was scheduled to expire on March 27, 2021.
Now, the bill heads to the Senate where it is expected to pass.
If you have any questions regarding Subchapter v please contact Jim Shenwick 212 541 6224 jshenwick@gmail.com

Wednesday, March 17, 2021

A Simple Guide To How NYC Is Screwing Up Giving Debt Forgiveness To Taxi Drivers Jalopnik

This article originally appeared in Jalopnik. A link to the article is below.

https://jalopnik.com/a-simple-guide-to-how-nyc-is-screwing-up-giving-debt-fo-1846478059

A Simple Guide To How NYC Is Screwing Up Giving Debt Forgiveness To Taxi Drivers

Raphael Orlove

The New York City government has set aside $65 million of federal stimulus money to fix the debt crisis among taxi drivers after days, weeks, months of yellow cab protests shutting down bridges and highways. Instead of giving money to the drivers in need, it’s bailing out rich lenders instead, including a big hedge fund in Connecticut.

This is meant to be a simple explainer so I will not attempt to understand or make sense of the city’s decision to bail out lenders not drivers. I can only lay out the dramas involved.

Taxi Drivers Are In Debt, And The City Is Responsible

Here in New York, you don’t just paint your car yellow and start picking people up off the street. You need a special taxi medallion for your car to be a taxi and pick up hails, and the city limits the number of medallions out there. As you can imagine, with limited supply and strong demand, the value of a medallion could rise. As Uber and Lyft have completely reshaped the taxi landscape here in the city, that value plummeted, and yellow cab drivers are now underwater, struggling to pay off loans on medallions now worth a fraction of what they started as.

Over the past two decades, the city not only watched as these prices skyrocketed, but encouraged it. To put some figures on that, medallion prices shot up 455 percent from 2001 to 2014 (the last city auction for medallions), as the New York Times reported, only to quickly drop again. That meant medallions “went from $200,000 in 2002 to over $1 million in 2014, then crashed to less than $200,000 soon after,” as City and State NY put it.

Under both the Bloomberg and De Blasio administrations, the city made $855 million off of those values, as the NY Times reported in 2019. A new NY Times feature lays out how the city helped:

As The New York Times reported in a series of articles, a group of taxi industry leaders had artificially inflated the price of a medallion to more than $1 million from about $200,000. They channeled immigrant drivers into loans they could not afford, creating a buying spree that drove up the price of the permits, and then extracted hundreds of millions of dollars before the bubble burst.

During the bubble, government officials worsened the problems by exempting the industry from regulations. The city also chose to fill budget gaps by selling medallions and running ads promoting the permits as “better than the stock market.”

The city sold those medallions, profited off of them. Now it’s the drivers who are suffering. As NPR put it in 2018, “cities made millions selling taxi medallions, now drivers are paying the price.”

It’s also the city that helped create drivers’ debt, so its job is easy: forgive the debt. What has the city done? Bailed out the lenders instead.

What’s The City’s Plan?

Let drivers borrow $20,000 to pay their medallion debt, and they can borrow another $9,000 for other monthly payments.

What Does This Accomplish?

With some drivers hundreds of thousands of dollars in debt, it doesn’t accomplish a lot! All it does, basically, is funnel a bunch of money to big lenders without helping drivers.

How The City Is Bailing Out Lenders Not Drivers

It’d be hard for me to even think up a plan of debt forgiveness that bails out rich lenders not poor drivers, but that’s exactly what the city is planning. Speaking with news outlet Business of Business, Bhairavi Desai, leader of the profit union New York Taxi Workers Alliance, laid out the way the city is bailing out lenders using the hedge fund Marblegate as an example. Marblegate is based in Greenwich, Connecticut (drivers drove all the way there in protest last year) and is the largest holder of medallion loans, as Business of Business reports.

Here’s how the city bails out lenders not drivers by funneling its relief money right back to them, as Desai explains:

In 2018 [Marblegate] bought about 300 taxi medallions, hedging their bets on the struggling industry; Uber and Lyft (which don’t require medallions) were just flourishing. Since February 2020, Marblegate started to purchase the medallion loans from lenders.

In the proposal that the city just announced, medallion owners can borrow $20,000 from the city at zero interest, but it must be used as leverage to negotiate debt restructuring. So, the city’s plan is to essentially loan owner/drivers $20,000 that they can then turn around and offer to the lender, Marblegate, or banks, or credit unions, with no concessions from the lenders as to what the new balance would be on these loans. 

Not only is the city directing its stimulus through the drivers to the lenders, it is doing it with no guarantee that the loans will be meaningfully paid down.

How Much Debt Are We Talking About Here?

“The city’s plan is not nearly enough to bail out the drivers, who each owe about $500,000 in loans on average,” as the NY Times put it recently.

Why The City Is Bailing Out Lenders Not Drivers

The De Blasio administration is experiencing a lame duck year, with city elections coming November 2021. Current officials will be looking for work, and it doesn’t look like they want to become cabbies. “Many of them come out of finance,” Desai puts it. “They’re making their plans to go back into finance.” Securing a bailout for a big operation like Marblegate doesn’t look bad on that resume.

What The Taxi Drivers Want

What the Taxi Workers Alliance plan entails is for the city to write down the loans to $125,000 and bail out the drivers it has helped send spiraling into debt. The lenders still get paid, but the drivers are in the clear, as Desai explains:

Our proposal has been that the city set up a backstop—if the hedge fund or bank reduced the debt to $125,000, the City of New York would guarantee it, 100% of delinquency. The medallion owners are protected and the banks and hedge fund would be guaranteed $125,000, even if the debt is $300,000 for example.

Marblegate can only collect amounts like $300,000 if people own assets; they’re hedging their bets on enough of the drivers having assets.




Even in the [worst] case scenario, our plan would end up costing the city $75 million over 20 years. Our plan is more fiscally sound and would be life-saving. Their plan costs more and does absolutely nothing, offers no relief.

The City Is Still Under Pressure

This crisis has been going on for years, and it is on the back of protests and direct pressure from other parts of the city government. The protests have not stopped (we are in the seventh day of protests from the Taxi Workers Alliance, with some very good looking food being made in solidarity), and the threat of a lawsuit isn’t cleared, either. New York state attorney general Letitia James threatened to sue the city for $810 million last year, but dropped the suit in late February 2021 in favor of supporting the Taxi Workers Alliance plan. It’s possible that the city is not completely off the hook, though as the New York Times currently reports:




The city could still face a lawsuit from the state attorney general, Letitia James, whose office investigated the crisis in response to the Times series and found the city was chiefly responsible. Ms. James announced last year that unless the city bailed out cabdrivers, she would sue the city for $810 million and give it to drivers. Her office did not respond to a request for comment about whether the mayor’s plan answered her findings.

City comptroller Scott Stringer was also at the protests calling for the Taxi Workers Alliance proposal

PPP Loans, Debtor in Possession Financing, Chapter 11 Debtors and Subchapter V Debtors




As several readers of our emails and blogs know, Congress has passed a new form of Chapter 11 bankruptcy for small business debtors. Details about this kind of bankruptcy filing can be located at our blog at https://shenwick.blogspot.com/search?q=subchapter+v

When a company files for bankruptcy, frequently they will need debtor in possession financing to remain in business and reorganize. While the Bankruptcy Code provides for a debtor in possession financing, our experience and the experience of many of our clients have been that debtor in possession financing is very difficult for small businesses to obtain after they file for Chapter 11 bankruptcy. This circumstance should be contrasted with large publicly traded companies that file for Chapter 11 bankruptcy, in which a market exists to provide those companies with a debtor in possession financing.
 
After the Paycheck Protection Program (the "PPP") was established in The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, many bankruptcy attorneys, financial advisors and accountants believed that PPP money may be a source of debtor in possession financing for  Chapter 11 debtors and Subchapter V debtors.

The CARES Act extended PPP loans to Subchapter V small business debtors, but unfortunately not to Chapter 11 debtors.
 
The CARES ACT further allows that PPP loans will be offered only if the SBA Administrator in its discretion sends a letter to the Director of the Executive Office for United States Trustee allowing  PPP loans in bankruptcy-unfortunately to date, the SBA has not sent that letter.
Due to the SBA administrator not sending that letter, it is unclear as to whether small business subchapter fee debtors will qualify for PPP loans.

Qualification may be based upon whether the Subchapter V Debtor received a 1st PPP loan, whether the loan was repaid or forgiven, or whether the SBA suffered a loss as a result of the 1st PPP loan.
Alison Bauer at Foley Hoag LLP wrote a great article on March 10, 2021 on this topic: “PPP Loans and Small Business Debtors in Bankruptcy”, which can be found at
https://www.jdsupra.com/legalnews/ppp-loans-and-small-business-debtors-in-5140892/

As a result, Chapter 11 debtors are not eligible for PP pay loans.

Subchapter V debtors may qualify for PPP loans, but they must proceed with caution and they may want to contact their bank or other banks that are processing PPP loans to determine whether they would qualify for a loan if they file for Subchapter V bankruptcy.

Individuals with questions about subchapter V Bankruptcy should contact Jim Shenwick at 212-541-6224 or jshenwick@gmail.com