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Unlike the rest of the US, Miami’s business economy remains strong as bankruptcy filings trend downward.
Most mid-size businesses are sticking around due to stimulus checks, moratoriums, PPP loans and other government programs where loans are intended to be forgiven, which is basically free money for businesses, said Jim Silver, a bankruptcy partner for Kelley Kronenberg.
“What I feel happened is the federal government just threw a ton of money into the economy, and basically papered over the problem,” he said. “My view is that was a short-term cosmetic fix and not long-term addressing of the economic problems. If your supply goes down and have more money chasing less supply, you’re going get a lot of inflation, and that’s what we’re starting to see now.”
The good news about PPP loan funds is that they were injected into the businesses to help, said Joe Luzinski, senior managing director for DSI, “But the bad news, in my opinion, it’s just a band-aid, not a cure. Ultimately, that money didn’t fix anything. It just extends whatever problem that business had before.”
The tsunami of cleaning out businesses that have been hanging around at the bottom 25% of the economy for the last two-plus years is still going to happen, Mr. Luzinski said.
“If you look at that over a long continuum, it’s part of our economy that it naturally kind of cleans itself out,” he said. “There are companies that go away every year and equity investors take that money and redeploy that into other ventures to try different things.”
In 2021, 72 cases of Chapter 11 were filed at the Bankruptcy Court of the Southern District of Florida. As of July, 49 businesses filed for bankruptcy so far this year. Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs, debts and assets. This form of bankruptcy also allows a company to stay in business and restructure its obligations.
A fair number of small businesses are now just starting to file for Chapter 5, which is a new subchapter of bankruptcy created through the Small Business Reorganization Act.
“It’s a small version of Chapter 11 that’s supposed to eliminate some of the hurdles to a business successfully reorganizing,” Mr. Silver explained. “It’s supposed to be less expensive, less complicated, in which standards that make it easier to form a plan and to successfully come out of bankruptcy.”
Nationally, businesses are going to face challenges, but not here in South Florida, added Tom Lehman. founding partner at Levine Kellogg Lehman Schneider + Grossman.
“I just heard that the Federal Open Market Committee is going to raise rates more that eventually history tells us it will slow down business activity and the recession,” he said. “I’m seeing big money center law firms coming down here and lots of activity in the professional sphere. That means that business transactions are taking place. I just don’t see bankruptcy filing cases picking up down here, but I think we’ll see it around the country.”
https://www.miamitodaynews.com/2022/08/09/miami-business-bankruptcies-run-against-trend/
