Lewis Roca Blog

On November 8^th, Arizona voters approved Proposition 209, which significantly modifies the rights of creditors. Although the pre-election publicity focused mostly on medical debt, Prop. 209 changes how all types of debt can be collected against individuals. The initiative took effect on December 5, 2022.

The SBRA law became effective in February 2020. In March, Congress increased the eligibility limit to businesses with up to $7,500,000 in debt for at least a year. Many, if not most, chapter 11 filings could qualify.

As the fallout from the COVID-19 virus widens and the prospect of an economic downturn looms, lenders are likely to focus more on protecting their collateral. Although many lenders are negotiating accommodations with borrowers in the short term, some of these accommodations will inevitably be unsuccessful and lead to defaults.

Lawyers who advise clients in financial distress are searching for answers for their clients.  Ultimately, cash flow and fundamentals are critical to business survival, but other tools can help.  Is it coincidence that the Small Business Reorganization Act became effective as the nation unknowingly was headed to financial crisis?