Legal

Increased Debt Limits for Both Subchapter V and Chapter 13 Cases

Now, additional relief for companies and individuals

by Carrie Tatkin

Carrie Tatkin is a partner at Radix Law, with a practice focused on consumer and business bankruptcy, representing both creditors and debtors. With more than 35 years of legal experience, Tatkin is adept at handling all aspects of her clients’ bankruptcy matters. radixlaw.com

The Small Business Reorganization Act, commonly referred to as “Subchapter V,” is a streamlined, flexible process for small businesses to reorganize in bankruptcy. Subchapter V is a type of Chapter 11 case designed for debtors (an entity or individual) engaged in business where at least half their total debt is business related. Less procedurally complex than a traditional Chapter 11 case, a typical subchapter V case is quicker, less expensive, more debtor-friendly and more efficient. As part of the CARES Act, the debt limit for Subchapter V eligibility had been temporarily increased from its original amount of $2,725,625 to $7,500,000 to help small businesses through unprecedented times. That provision expired on March 27, 2022.

With bipartisan support, on June 21, 2022, the Bankruptcy Threshold Adjustment and Technical Corrections Act was signed into law by President Biden. The Act once again increases the total debt threshold (as defined in the Act) for determining the eligibility of a debtor to proceed under Subchapter V to $7,500,000, effective retroactively to cases commenced on or after March 27, 2020, through June 21, 2024 (two years after the date of enactment of the Act).

This extension of the higher debt limit in subchapter V cases will help address post-pandemic issues, such as the end of certain government assistance programs that include eviction and foreclosure moratoriums. As inflation and interest rates continue to rise, more companies and individuals may look to this reorganization option to protect themselves as creditors become more proactive in attempting to recover from their own pandemic losses.

This new law also significantly increases Chapter 13 debt limits for two years, to $2,750,000. Chapter 13 cases are for individuals, not business entities. In addition to raising the debt limit, the Act makes important changes to eligibility under Chapter 13 by changing the definition of an eligible debtor to “an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated debts of less than $2,750,000 or an individual . . . and such individual’s spouse . . . that owe . . . noncontingent, liquidated debts that aggregate less than $2,750,000.” There will no longer be separate debt limits for unsecured and secured debts, but rather one single limit for all debts.

Like the Subchapter V increase, the increased debt limits for Chapter 13 will also sunset in two years. This increase will allow more individuals to reorganize without the need to file a generally more complex and expensive individual Chapter 11 case. Debtors with large mortgage debts will be able to cure defaults and maintain payments. Large judgments, tax liabilities or large deficiencies from foreclosures or repossessions will be less likely to exclude someone from Chapter 13 relief.

With the expanded debt limits, more debtors who would have had no option but to file a traditional Chapter 11 case can choose the more streamlined Subchapter V case. And many debtors will be eligible to file a Chapter 13 who would have been disqualified merely because either their unsecured debts or their secured debts happened to exceed the prior debt limits. These revisions have taken into consideration the economic realities of small businesses and individuals, where owners, for example, have routinely guaranteed significant business debt. Business closures during the pandemic have triggered related liabilities that their owners never contemplated. Bankruptcy filings remain at historically low levels, but that tide is expected to change. Pandemic-related subsidies are expiring, creditors are becoming more aggressive, and interest rates and inflation are rising. Congress acted, providing better bankruptcy options to address the many scenarios threatening personal and business financial stability.

SUPPORT AZ’S FINEST THIS FALL

Running through October 2022, the Cystic Fibrosis Foundation’s Arizona’s Finest is a unique and fun fundraising campaign for the best and brightest young professionals of Arizona. Those who participate are given the opportunity to display their community leadership, acknowledge their employer, highlight their professional achievements and get creative, while raising funds to provide all people with cystic fibrosis the opportunity to lead full, productive lives.

This year’s campaign kicked off in June and concludes in October, giving candidates five months to work together to hit their individual and group fundraising goals. Throughout the campaign, the Finest have the opportunity to learn about the CF Foundation and our community, understand the power of giving back, and utilize their leadership skills to connect and grow together as future leaders. finest.cff.org/azsfinest

AVP of Corporate Social Impact at Weedmaps, Tyler Butler is a corporate responsibility practitioner, social impact professional and contributor for several media outlets. She is a social impact executive who is passionate about sustainability. She is certified in ESG and corporate citizenship and holds degrees from ASU and Boston College. linkedin.com/in/tylerbutler

Strunk Insurance Group – A Legacy of Giving

And a culture of caring

by Tyler Butler

Arizona loves its home-grown businesses. Many of them reciprocate this sentiment by giving back to society. For 20 years, the Strunk Insurance Group has served as one of these strong local leaders. Family-owned and -operated, SIG has a commitment to contribute and serve.

The insurance company was founded in 1982 by Greg Strunk, a former Big 10 and NFL Football player with a young family to support and a dream. Today, SIG is a multi-generational, familyowned business. And, while SIG has grown a lot since it was started, its commitment to clients has never wavered.

As a leading employee benefits and human resources consulting firm servicing clients across Arizona and the Southwest, SIG crafts comprehensive corporate benefits packages with a robust range of employee benefits services. It aids in education, enrollment, compliance and administration for its clients, and currently serves a few hundred clients.

It’s been philanthropy, though, as an underpinning of SIG that has distinguished the group locally. Greg Strunk became a Phoenix Thunderbird in 1985 and was very active in the organization throughout the ’80s, ’90s, and 2000s. He recognized that the Thunderbirds would provide a fantastic opportunity to expand his network in Phoenix and give back to the community where he was raising his family.

It was Greg who created a culture of caring that would transfer to his son Casey when he, later, took on the business. In fact, it was even philanthropy that brought together the next generation at the Strunk Insurance Group when, in 2011, Casey met his wife Teresa through a charity fundraiser. The couple met through the Arizona’s Finest campaign, which supports the Cystic Fibrosis Foundation of Arizona.

In 2018, Casey and Teresa purchased the business from Casey’s father, Greg, keeping their ethos in line with the community-centric values the company was founded upon. “Giving back to our community with our time, talent and treasure is equally important to us as operating a successful business,” shares SIG president Casey Strunk. And this philosophy will remain a major pillar for SIG as the Strunks raise their daughters to become the next generation of community helpers.

Weaving philanthropy into the business, SIG focuses on women’s, children’s and education-based causes. Often, SIG’s support is visible, sponsoring events or supporting nonprofits endeavors throughout the Valley. This financial support translates into community stewardship as well.

SIG’s service as community also includes its team members. While SIG does not have an official volunteer program in place, the company organizes an “Adopt-A- Family” program around the holidays. Additionally, leadership encourages and supports volunteerism throughout the year and grants time off for community or board of director service. The family hopes to someday have a family foundation to drive their dedication to charity further.

Matt Davis, executive director of Executive Council Charities, shares, “As past president of Executive Council Charities, Casey’s leadership has inspired others to deliver superior results, and we can’t thank him enough for all that he has done to help the group and charity grow year after year.”

As philanthropists at heart, both Casey and Teresa have served the community on several boards and committees, Casey with the 20/30 Club of Phoenix and Teresa the Big Brother Big Sister’s organization. SIG’s belief in paying it forward and helping others who need a hand up for a stronger community is a commitment its leadership takes seriously.

“Since joining our board of directors in 2014, Teresa has made an immeasurable impact on our organization. As board chair, she led our agency through the uncertainty of a pandemic and helped us emerge stronger. Teresa is a compassionate and thoughtful leader, and we are grateful for her service to BBBS,” says Laura Capello, president and CEO of Big Brothers Big Sisters of Central Arizona.

With a hyper local focus, the second generation of the Strunk group is poised as leaders in the Arizona community, Casey serving as the board chair for Special Olympics and on the board of directors for PCH50, a men’s charity group for Phoenix Children’s Hospital; Teresa serving as the board secretary for Academic Opportunity of Arizona, the Phoenix Committee Chair for KNOW Cares, in addition to her role as board chair for BBBS of Central Arizona.

SIG’s multi-generational commitment to serve and lead continues to evolve along with the Arizona community. The current generation of Strunk leaders plans to serve the community where and when called upon. Serving as local stewards, dedicated to the great State of Arizona, their leadership will continue to foster a richer, more connected community.

Strunk Insurance Group strunkgroup.com

Diane Thomas is president of Premier Sales, Inc., a business sales, merger and acquisitions firm located in Scottsdale, Arizona. For more than 30 years, Premier Sales’ client-centric focus and creative win-win mentality has produced extraordinary results with one of the highest industry success rates. premiersalesaz.com

Disruption and Continuity – Preparing the Business Response

Business continuity planning can be a company’s ace in the hole

by Diane Thomas

Business continuity planning is an essential piece of business planning. Continuity plans are created to ensure that the company is capable of continuing delivery of products or services at pre-defined acceptable levels following a “disruptive incident or circumstance.”

A disruptive incident or circumstance includes a wide range of potential threats to a company — natural disasters, death or disability of a key employee or owner/founder, major incident involving the company that will become public, even a pandemic.

One significant takeaway from COVID is companies were forced to be resilient. From our observations, the companies that came out stronger had similar characteristics: a written business plan with assigned responsibilities, accountabilities with completion dates; clearly defined vision, mission and value statements; company culture that valued its people, inside and outside the company; and leadership.

So, what does all of this have to do with business continuity planning? While these companies may or may not have had a formal business continuity plan, they did have some of the key elements of such a plan that allowed the company to act swiftly and responsibly — consistent with past practices.

Business continuity planning is a process that involves leaders within an organization. This is a team event. It’s a combination of business and disaster recovery planning that assumes the founder/owner is not available to lead the charge.

The leadership team identifies potential threats to the company’s ability to withstand an unexpected, disruptive incident. Once the threats are identified, then the leadership team ascertains possible mitigation strategies and immediate action items.

Mitigation strategies can include key-man life insurance, cyber security insurance coverage, multi-location cloud-based routine backup protocol, on-site first aid and CPR training, and a policy that certain key employees are not allowed to be on the same air flight, to name just a few.

Here are items to review as part of the discovery and identification of potential threats: • Bank loan agreements — it’s important to understand the covenants, guaranty, security. • Company organizational documents — it’s important to understand authority parameters. • Organizational chart — it’s important to identify key positions. • Key customer contracts — it’s important to understand restrictive, default, assignment, performance and payment provisions. • Key supplier agreements — it’s important to understand guaranty, credit limit and payment provisions. • Insurance policies — it’s good practice for businesses to review their policies annually with their professional to

ensure they have appropriate coverage. • Lease agreement — it’s important to understand guaranty, terms and conditions.

Here are items to consider in a business continuity plan: • Letter from founder/owner to employees and family — to communicate that a plan has been created to address the situation; that the owner has taken the time to ensure the business will continue to operate smoothly going forward; and that the owner has confidence in the leadership team or named successor to carry the company through this situation. • List of trusted advisors and contact information. • Action item list that details who will be contacted, by whom from within the company and what will be the communication. This includes external communication to key company relationships, such as customers, suppliers and banks. This also includes filing insurance claims for cyber security, fire or key man. • Business continuity details: ∘ Name of the person who will lead and manage in the interim period; ∘ Strategy for long-term reassignment of key employee or founder/owner responsibilities; ∘ Disaster recovery plan that includes established ad hoc meeting protocols and internal and external communications (public relations, image, customer perspective); ∘ Founder death or disability plan that may include the named owner, buy-sell agreement, business valuation, who will facilitate sale/transfer, employee stay bonuses, and internal and external communication; ∘ Secured protocol to retrieve passwords; and ∘ Protocol to protect data, processes, confidential materials, intellectual property, etc.

Having a written business continuity plan gives the leadership team and founder/owner peace of mind. And, in the event it is necessary to deploy the plan, people will lead with confidence. While it’s not possible to identify and plan for every possible threat, the process of developing the business continuity plan strengthens the team’s ability to work collaboratively on difficult topics. But this is not a stagnant document; it requires continual updating and review because change today is happening as such a fast pace. What looked benign yesterday could be catastrophic unaddressed.

This process will mirror how people will respond in the throes of an unexpected incident. And a company may find its people will pull together especially when they have the same shared vision, mission and values.

Tricia Groff, Ph.D., is an executive advisor and executive coach who works with high achievers and their organizations. She is also a licensed psychologist who brings 20 years of behind-thescenes conversations to her recommendations for workplace wellness and profitability. Dr. Groff is the author of Relational Genius: The High Achiever’s Guide to Soft-Skill Confidence in Leadership and Life. drtriciagroff.com

Tough Talks – How to Have Difficult Conversations with Employees

Getting past the hesitation and awkwardness

by Dr. Tricia Groff

One of my clients, a business owner, reached out to me and said, “How do I tell this person that they need to keep their personal stressors from impacting everyone at work without sounding like a jerk?”

The situations may change, from telling employees they are underperforming to telling them their attitude is alienating everyone around them to telling them they are being fired. (My perennial favorite is how to handle bad breath and body odor).

Leaders across all levels of experience, age and title often feel inept about how to address difficult conversations. They are smart and skilled, and their reluctance often stems from their strengths: kindness, a desire for harmony, and insight into the downstream impact of conversations.

GUIDELINES THAT HELP

Difficult conversations with employees may never feel easy, but here are some guidelines to make leaders feel less alone as they walk through them.

Waiting makes it worse. The longer leaders wait, the more time, energy and focus they lose worrying about the impending meeting. Everyone knows this at a logical level, but most people rationalize delaying the conversation by waiting for the right time. I always ask myself, “Will I ever want to have this conversation?” and “Will waiting make it better?” Usually, the outcomes of waiting include more stress, a worse situation, an erosion of patience and fewer chances for a positive outcome.

All conversations should have a goal and a followup plan. Whenever I help leaders prepare for a difficult conversation, I ask them what they are trying to achieve. The goal governs the approach, creates clear expectations about outcomes, and provides a path for follow-up. The follow-up plan needs to include the timeframe and what action items will be reviewed. Follow-up provides emotional safety for employees because they know where they stand.

Time and place matter. Leaders can best help the employee in question and others in the organization by paying attention to the unique variables that govern time and place. For example, Friday afternoons are great times to meet with particularly disruptive employees who may need the weekend to cool down. If an employee has two important meetings, one may want to avoid scheduling a difficult conversation in the middle of them. Coffee or lunch outings are never appropriate for difficult conversations — the social atmosphere lacks privacy and sends mixed messages.

Consult with HR or other trusted advisers. Many initial difficult conversations can happen one on one, with appropriate documentation. In some situations, leaders may want HR present. The upside to having only two people in the room is increased openness and vulnerability. The downside is that it makes the organization legally vulnerable in he said/she said scenarios.

Small companies without dedicated HR may want to consult with another leader who is stable and trustworthy. This person can also act as a witness if necessary. Single business ownerleaders should document everything and consult with an adviser or attorney as appropriate.

Deal with emotions. Many people try to mask all emotion or hold it in until they explode. When leaders are angry, it can be helpful to vent to someone else first. If leaders are nervous or frustrated, they can let the employee know that the conversation is difficult. I’ve had people tell me first-hand that an employer’s own stress or empathy made difficult conversations easier.

Leaders who are uncomfortable with emotion themselves often have difficulty tolerating it in others. If they rush to make an employee’s emotions go away, they risk coming across as cold, glossing over an issue, divulging too much or making promises they can’t keep.

There’s power in encouragement. Difficult conversations with well-liked employees can be especially hard. Leaders can honor good employees with a straightforward approach that integrates tough feedback with encouragement. This combination of honest and specific feedback helps employees feel valued and respected.

Difficult conversations require a leader’s utmost courage. When leaders can step up to the plate, they help their employees grow, protect other people on the team and allow their organizations to thrive.

PITFALLS TO AVOID

On the flip side are things I tell people to not do.

Do not ask people to lunch or coffee and fire them.

Do not set a meeting five days ahead. It’s one thing if oneon-ones are regular items. However, if such meetings are not normal occurrences with an employee, they will raise anxiety. By the time the meeting occurs, the heightened anxiety will guarantee that it will be much muddier than it needed to be.

Do not reprimand people in public (unless you are purposely trying to shame them, and you want them to hate you). Some people have said to me, “I’m so angry, I don’t care.” The problem is that this mindset makes the leader and the company more liable to negative ramifications.