By Jared A. Ellias (University of California Hastings College of the Law), George Triantis (Stanford Law School)
During the COVID-19 pandemic, Congress has moved quickly to get trillions of dollars of emergency relief to consumers, small businesses, and large firms. These efforts aim to rescue millions of American consumers and businesses from insolvency.
It is troubling, though, that the federal government is ignoring the law that already exists for cushioning the blows associated with financial distress: the bankruptcy system. In its strategy to provide relief and stimulus, the government is in effect offering roadside emergency assistance when the infrastructure and expertise of a hospital is easily accessible.
Because the bankruptcy system entails a detailed restructuring process, it forces companies to think hard about how they’ve been doing things and whether it makes sense to continue doing them that way. Cash infusions from programs like those in the CARES Act, on the other hand, are only designed to keep businesses’ heads above water. That’s all that some companies need, but for others that were already struggling before the crisis hit, such as J.Crew and Neiman Marcus, bankruptcy can encourage them to focus on their long-term health.
Our existing bankruptcy system isn’t only crucial for helping companies move past their immediate crisis of zero revenue and illiquidity, it will also be essential in helping entire industries adapt to a prolonged period of uncertainty created by the coronavirus pandemic.
For the full opinion piece, click here.
For other Roundtable posts relating to the Covid-19 crisis, see Andrew N. Goldman, George W. Shuster Jr., Benjamin W. Loveland, Lauren R. Lifland, “COVID-19: Rethinking Chapter 11 Bankruptcy Valuation Issues in the Crisis.”