BY OYAOL NGIRAIRIKL
Journal Staff

Suzuki

In 2009, Guam saw 220 bankruptcy cases. That’s a higher number than some of the more recent years combined.

In 2019 there were 160 bankruptcy cases at the District Court of Guam. In 2020, there were 67 cases and in 2021 there were 53. In 2022, from January to Aug. 26, there were 25 cases filed.

The lull in cases, according to Bryce Suzuki, attorney of Snell & Wilmer of Phoenix, Ariz., reflects similar and surprising trends throughout the U.S.

“When the pandemic really hit, all of us in the bankruptcy practice thought, ‘Here it comes; there’s going to be so many bankruptcies. The entire hospitality and travel industry is going to be so deeply impacted … there’s going to be a tsunami of bankruptcy filings,’” Suzuki said. “And to our surprise that didn’t happen.

“The debate going on now is whether … the day of reckoning is coming and it as a delay rather than a real fix, but that remains to be seen,” Suzuki later said.

Tydingco-Gatewood

In anticipation of the anticipated bankruptcies, District Court of Guam Chief Judge Frances M. Tydingco-Gatewood reached out to colleague and friend Judge Daniel P. Collins of the U.S. Bankruptcy Court for the District of Arizona to assist with an academy that focused on bankruptcies.

Fortunately, there weren’t too many bankruptcies filed since the pandemic hit nearly three years ago in March 2020. Those numbers, in fact, dropped by more than half.

But what stopped or perhaps delayed the rush of bankruptcy filings?

“I think a lot of it had to do with emergency stimulus measures. There was just so much capital poured into the markets. There were so many easy-lending programs, the PPP loans, the Main Street lending programs that companies that otherwise would have been forced out of business or forced into severe liquidity problems had this lifeline,” Suzuki said.

Collins

According to the Board of Governors of the Federal Reserve System, the Federal Reserve established the Main Street Lending Program to support lending to small and medium-sized for-profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. The program ended Jan. 8, 2021.

Similarly, other federally funded programs aimed to directly help COVID-19-impacted businesses are either being dialed down in the new fiscal year, which started Oct. 1, or discontinued altogether. Additionally, the Pandemic Unemployment Assistance and other unemployment payments for individuals have also ended. The programs gave people who had lost their jobs or working hours an allotment so they could purchase needs and some wants. Guam received more than $1 billion in federal unemployment aid.

Bankruptcies fall under the purview of the District Court of Guam.
Photo courtesy of Wikiwand

Separate and apart from the federal government money, “There were all kinds of private capital in the market,” Suzuki said. “That really is why you’re seeing filings down now, not only in Guam, but really across the board.” 

Judge Collins led the Bankruptcy Academy during the Pacific Judicial Council meeting held at Dusit Thani Resort Guam in October. Collins, according to Tydingco-Gatewood, is currently handling two Guam bankruptcy cases dealing with The Sherwood Hotel and Hotel Santa Fe as she conflicted out of both.

“(Judge Tydingco-Gatewood) wanted to make sure that the lawyers on the island were prepared and adequately tooled up for (a potential wave of bankruptcies). When that didn’t happen, it was still very much a desire of hers to try to upgrade the practice and to elevate the bankruptcy practice to let people know this is not just a mystery court,” Collins said.

“It is something that anybody who is doing commercial work or helping individuals ought to know something about… And even if you’re not going to be a full-time bankruptcy practitioner, it’s good to know how bankruptcy works and be able to spot the issues.”

He added that having held one Bankruptcy Academy, that the courts have started a “dialogue with lawyers whose real specialties are real estate, or litigation, or labor, or something else.”

“And hopefully, we’ve demystified a little bit about what bankruptcy is,” he added.

But the first step when financial woes start to overtake an individual or a business, isn’t a declaration of bankruptcy. 

“I think one of the services a good bankruptcy lawyer offers their clients are solutions not in bankruptcy but workups or work arounds to avoid bankruptcy altogether,” Collins said. “Bankruptcies are there as a tool for individuals and companies that need it, and you ought not to fear filing for bankruptcy if you know what you’re doing.” 

In Guam, Chapter 7 is the more common bankruptcy filed, followed by Chapter 13. There are only one or two cases filed under Chapter 11. And a Chapter 15, which deals with foreign businesses, was filed only once in nearly two decades in 2013.

A Chapter 7 debtor turns over all nonexempt property to a trustee, who pays creditors. The debtor is discharged of all debts.

Commercial enterprises commonly file Chapter 11 bankruptcy petitions, which are also known as “reorganization” plans. Companies may continue to operate their businesses.

A Chapter 13 debtor is allowed to keep property and pays debts over time, usually three to five years. It is also called a wage earner’s plan. Chapter 13 is strictly for individuals or individuals who run businesses and not for business entities.

Tydingco Gatewood said there’s also a subchapter 5, which was recently legislated. Collins is handling two – the only two such cases. One of them deals with a creditor forcing the bankruptcy proceedings. Subchapter 5 allows a small business debtor to spread its debt over 3 to 5 years.

Tydingco Gatewood said a second Bankruptcy Academy could include a local and federal judges conference. It would look at the types of cases that are handled locally and how they intersect with bankruptcy law.

“Because that’s something I never learned about and am still learning, honestly, even after being a federal judge for 16 years,” she said.

Even as a local judge she didn’t learn much about bankruptcy, Tydingco-Gatewood said. She and Collins said it would be good for judges as well as attorneys to know, as the island goes into a period where federal funds are lapsing but the local economy hasn’t picked up. mbj