- Bankruptcy lawyer Corali Lopez-Castro's caseload of Chapter 11 cases has increased from 15-20 cases at a time to 30-35 cases since the start of the pandemic.
- Lopez-Castro outlined for Business Insider two major reasons she thinks even more retail businesses will be filing for Chapter 11 bankruptcy in the coming months.
- First, she said that some businesses will run out of their PPP funding. And second, she said that many banks have allowed customers to defer their payments, but those deferment periods will end.
- Lopez-Castro also thinks the unpredictable opening and closing of businesses due to the pandemic will make it difficult for some retailers to prove their plans for restructuring are feasible to the courts.
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Bankruptcy lawyer Corali Lopez-Castro has been even busier than usual these past few months. The Miami-based firm, Kozyak Tropin Throckmorton, where Lopez-Castro works typically handles 15-20 Chapter 11 cases at a time. But since the pandemic hit, they have had about 30-35 cases going at once — almost twice the volume as before.
"Not a lot of sleep, let's just say that. I have three devices going at any one time," she told Business Insider in an interview. "I feel like I'm looking at three screens continually and there's no time where I can say, 'okay I'm going home now and I'm off work.' I'm on 24/7"
Castro-Lopez's crazy hours and increased caseload likely aren't shocking to anyone following the retail headlines during the pandemic. More than 30 retailers have filed for Chapter 11 restructuring since the pandemic first hit the U.S. and forced closures in March, affecting the already stressed industry. Lopez-Castro unfortunately doesn't think that's going to slow down anytime soon, either.
"We still haven't even seen what we're going to see. I think a tsunami is coming," she said. Lopez-Castro outlined for Business Insider two major reasons she thinks that the retail industry has yet to see all of its bankruptcy filings.
First, "some businesses have been surviving on their PPP loan from the government," she said. The U.S. government gave out more than $659 billion in loans to businesses through the Paycheck Protection Program (PPP), which closed to applications on August 8. Lopez-Castro thinks that many businesses have been able to stay afloat because of these loans, but when the funds run out, they might have to consider entering into Chapter 11 bankruptcy.
"And two, the banks have been forbearing on exercising their rights," Lopez-Castro said. Many banks offered deferrals to customers who were affected by the pandemic, but deferral periods don't last forever. "Banks have shareholders that they answer to, and that's coming to a close too."
When an indebted company decides to file for Chapter 11 bankruptcy, the company has to propose a plan for the reorganization of their business that will both keep the company alive and pay its creditors over time. That plan then is approved by the bankruptcy court.
Lopez-Castro said that another major obstacle for companies who file for Chapter 11 restructuring is the unpredictable economic state of the country during COVID. Many retailers have already reopened their doors, only to have to close them shortly thereafter because of another surge in cases.
"How can you comfortably and confidently project what your revenues will be in the future in order to prove feasibility under the bankruptcy court?" she said. "How much confidence can you have in those projections when there's so much uncertainty about what's going to happen to business openings and closures during the next few months?"
Anecdotally, Lopez-Castro said she's seen some courts question the feasibility of proposed projections and restructuring plans. But she's also seen some judges give debtors a lot of time before they dismiss the case, or convert the case to a Chapter 7, which results in liquidation.
"If you're a debtor now, you're going to get some time," she said.
Unfortunately, that time is also costly — entering into bankruptcy is very expensive to the debtor, and as such is designed to move quickly. In the words of Lopez-Castro, who has been a practicing lawyer for 30 years, "bankruptcy cases are not a fine wine. They don't get better with age."
Lopez-Castro's hope is always to work with her clients to help them successfully restructure and exit Chapter 11 bankruptcy. "The cases I'm most proud of are the ones I keep out of bankruptcy," she said.
Some retailers have recently found success amidst difficult circumstances. J. Crew won approval to exit Chapter 11 on August 25, and others have found exits through a sale, as with the Brooks Brothers sale to Sparc.
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