Wednesday, June 29 2022

ALex Jones is undoubtedly a controversial figure. Its Infowars media platform has been accused of spreading conspiracy theories including suggesting that the Sandy Hook massacre was a staged event to reflect that chemicals in our water supply were turning frogs gay. For a time, and even now, his business amassed millions of followers and made him rich. That didn’t last. Infowars, to the relief of many, is facing bankruptcy. But, not surprisingly, Jones is creating even more controversy. He is doing this by trying to subvert the new bankruptcy laws that were enacted to help small businesses.

The new bankruptcy law is commonly referred to as “subchapter V” due to its place in the rules of chapter 11 of the US bankruptcy code. It was enacted by Congress as part of the Small Business Reorganization Act of 2019 and It went into effect in February 2020. The purpose of the law was to make it easier for struggling businesses to get more affordable protection while they reorganize. It applies to business owners who have debts of up to $2.75 million (excluding debts to affiliates or insiders, a consideration that will be important to this story) and where less than 50% of the debts arose due to business activities or business of the debtor or business owner.

If your business falls into this category, then the cost of filing for bankruptcy under the new subchapter V rules is much less and the process is much easier than filing under the more onerous chapter 11 rules. You do not need to form a committee unsecured creditor officer. You do not have to pay a quarterly US trustee fee. You can take advantage of a reduced period (90 days) to file a plan of reorganization. You can spread out payment for administrative services (including attorneys’ fees) over the life of the plan, which can last up to five years. You can also create a reorganization plan that does not require the approval of all your creditors. exist Other features of this new law, but by now you probably understand that it is designed to help small businesses deal with the pain of bankruptcy and give them the opportunity to restructure with fewer administrative challenges.

Alex Jones decided to take advantage of subchapter V. This is what he did.

Jones and his company Freedom Speech Systems (FSS) were being sued by the parents of the children killed in the Sandy Hook school shooting. Jones did not want his or his company’s assets exposed to the lawsuit. So he decided to take advantage of Subchapter V of Chapter 11 of the bankruptcy code.

According to a Fortune report, he did this by taking over three non-operating entities, including his Infowars website, and filed for protection, naming the Sandy Hook plaintiffs as his creditors. Distributed estimated liabilities to comply with subchapter V to delay litigation and avoid creditor approval requirement to restructure. In doing so, he attempted to protect Freedom Speech Systems and himself from liability.

according to a report in Axios, Jones tried to “separate from some smaller entities and declare them bankrupt, instead of personally declaring them or putting the main operating company that has their business in bankruptcy.” He diverted assets from smaller entities to him and then claimed them as creditors of Infowars, even though he owned them. Although the Small Business Reorganization Act of 2019 made filing for bankruptcy easier, it still requires businesses filing for bankruptcy to be “engaged in business.” It was obvious to many that these smaller entities were not.

The Justice Department’s lawyers were undeterred. “It appears that Jones intends to take advantage of the bankruptcy filings of his holding companies to extend the automatic stays of pending litigation against the Debtors to himself and FSS, while maintaining full control of FSS and its assets going forward,” they wrote in their objection. A judge agreed and stopped the action.

Let’s hope your small business never has to file for bankruptcy. But if you are forced to, and choose to do so under the new Subchapter V bankruptcy rules, be sure to follow the rules. You cannot avoid other creditors by creating new entities that you own and dividing up the assets. Your debtors cannot be yourself or other entities you own. And they had better be real, working companies, too. This is not a conspiracy. Is the law.

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