2201 Post Road, Suite 104, Austin, Texas 78704
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Legal Issues for Small Businesses Affected by Hurricanes Katrina and Rita
Information prepared by Akin Gump Strauss Hauer & Feld LLP for Texas C-BAR
BUSINESS PROPERTY INSURANCE
Contact your insurance company or agent as soon as possible
Give your insurance company or agent as much information as possible
Take notes and make copies of communications
Be patient and cautious
For self-employed individuals and other small businesses owners, you may have some form of casualty insurance on property and equipment used in your trade or business. It is important to contact your insurance company or agent as soon a possible to notify your insurance company of losses to your covered business property. Even if you don’t have all the information necessary to fully complete a claim right now, it’s still important to give your insurance company or agent as much information as you can about possible losses. When you call your insurance company or agent, make notes about who you spoke with, what you told them and make a copy of anything you send to the insurance company.
All property insurance adjusters in Louisiana must be registered with the Louisiana Department of Insurance. Insurance adjusters make money by taking a percentage of the settlement. For questions about business property insurance call the state insurance department.
Louisiana Residents:
1-800-259-5300 (Out of State) or 225-342-5300 (In Baton Rouge)
COMMERCIAL LEASE
If a building used by your small business is destroyed by the disaster, obtain a copy of the lease to determine whether the lease is terminated or there will be a reduction in the rent if the building cannot be used. Notify the landlord as soon as possible in writing that the building is damaged.
DISASTER ASSISTANCE
Small Business Administration Assistance
If you are a small business person affected by Hurricane Katrina and need assistance, you may be eligible for disaster assistance from the Small Business Administration (the “SBA”). To inquire about assistance, you should call 1 (800) 659-2955 or TTY 1 (800) 877-8339. Applications for SBA assistance and related instructions can be found at http://www.sba.gov/disaster_recov/loaninfo/dloanassit.html.
FEMA
Business owners and residents in the affected areas can begin the disaster application process by registering online with FEMA at www.fema.gov or calling 800-621-FEMA (3362).
Louisiana State Economic Development Corporation Assistance
If you live in Louisiana and are part of a small business, you may be eligible for assistance from the Louisiana State Economic Development Corporation (the “LED”). For information on temporary business relocation or financial assistance, send an email to . LED representatives will respond to inquiries and help businesses find the resources they need.
Joint SBA and LED Assistance
SBA and LED have teamed up to aid businesses, individuals and others with low-interest and extended-term loans. SBA now has staff working in LED’s Baton Rouge office until the entire recovery effort for Katrina has run its course. Two types of business loan programs available are (additional loans may be available for personal property losses):
§ Business Physical Disaster Loans – to repair or replace disaster damages to property owned by businesses of all sizes. Non-profit organizations are also eligible.
§ Economic Injury Disaster Loans – for working capital to small businesses and cooperatives to assist them through the recovery period.
These loan programs are available to displaced businesses, individuals and others in all parishes adversely affected by Katrina, as well as locations serving as temporary shelters for displaced persons from all states.
Louisiana Association of Business and Industry Grants
The Louisiana Association of Business and Industry (the “LABI”) will begin accepting grant applications for the Small Business Disaster Relief Fund on September 15, 2005. You can download applications from its web site at http://www.labi.org/ beginning on that date. To be eligible for a grant, an applicant must be an owner or principal in a for-profit, private sector business that had fewer than 100 employees on August 29, 2005. Any affected business in a parish or county designated as a primary disaster relief area by the federal government will be eligible. The business must have suffered substantial losses or the potential of long-term business interruption as a direct result of Hurricane Katrina. The Small Business Disaster Relief Fund is not in place to give money to business owners who are permanently going out of business. Its role is to provide gap funding for losses insurance will not cover to assist small businesses reentry into the economy. An important part of the application will deal with how the applicant will use the grant to go back into business or bring their business back up to prior levels of activity more quickly. Another important factor will focus on how many jobs the grant will help restore.
Assistance for Farmers and Ranchers
If you are a farmer or rancher needing assistance, please visit the Department of Agriculture for more information. You may want to contact the Farm Services Agency near your home because you may be eligible for emergency loans from the Farm Services Agency. If you are unable to reach your local Farm Services Agency representative, call (352) 379-4500.
Federal Income Tax
Business owners who suffer damage or loss to their property or business as a result of a natural disaster such as Hurricane Katrina are eligible for special federal income tax treatment that may help their business recover from the damage. These special provisions fall into two categories: casualty loss deductions and deferral of casualty gains. There are restrictions on eligibility for these provisions. For example, you must be current with your IRS filing obligations; other restrictions and limitations may also apply.
The IRS has announced special relief from certain return filing deadlines for residents of counties and parishes along the Gulf Coast within the Presidential Disaster Areas. For additional information on these and other topics relating to federal taxes—and to obtain a Disaster Tax Loss Kit from the IRS—contact:
IRS Disaster Relief Toll-Free Number:
1-866-562-5227
Banking
Contact your bank as soon as possible to report any lost checks, debit or credit cards. Your bank may be able to mail temporary checks to you if you need them. You should also consider stopping automatic withdrawals from your existing account(s) for services you are not receiving during evacuation. Consider opening a temporary new bank account in the location of your evacuation to enable you to meet emergency business needs and more readily access any disaster assistance funds or insurance proceeds you may receive.
For business loans, discuss with your bank or other lender the possibility of a temporary suspension on loan payments and other loan obligations, such as maintaining insurance on collateral for business loans.
FDIC has established a toll-free number to address general questions regarding banking issues in the areas affected by Hurricane Katrina.
FDIC Toll-Free Number/Answered 24/7:
1-877-275-3343 (1-877-ASK-FDIC)
or
1-877-275-3342
CONTRACTUAL OBLIGATIONS
Many self-employed persons and small business owners are likely to have ongoing business obligations to vendors, suppliers and customers while your business operations are interrupted. Many of these obligations may be suspended or terminated if you have been unable to fulfill the obligations as a result of the disaster. Whether your obligations may be suspended or terminated will depend on the terms of the contracts between you and the other people you do business with. This will also apply to the contractual obligations that your vendors, suppliers and customers owe to you.
EMPLOYEES
Louisiana employees, who are laid off, fired, or who quit must be paid their wages in full at the next regular payday, not to exceed 15 days from the date of their discharge or termination. Wages include vacation time earned by the employee. An employee should send a written demand for payment of their final wages to their employer. After receipt of a written demand, the employer must pay all wages owed to the employee on a timely basis or be subject to a penalty that may be imposed by the court. Claims against an employer for late payment may be filed by way of a private lawsuit. An employer may pay the surviving spouse or children of a deceased employee the last wages and other benefits due the employee without a court order.
The shutdown of an employer’s enterprise may also trigger the elimination of group insurance coverage for covered employees and dependents. This would obligate the employer to send notices to the ex-employees advising them of their conversion rights (the right to covert the group coverage to an individual coverage) pursuant to a federal statute known as “COBRA.”
RELOCATION OR DISCONTINUANCE OF BUSINESS
If you decide to either relocate your business or to discontinue it, there are several points to consider. If you relocate your business to a different state, you will likely be required to file new documents in that state for sales tax permits, licenses, business name registration and corporation or similar documents if you operate your business in an entity such as a corporation. Please note that Louisiana, in particular, may require withdrawal and dissolution notices to be published in a local newspaper before dissolution can become effective.
In the event that a business terminates the owners should consider filing appropriate dissolution paper work with the states in which the business is registered to do business.
BANKRUPTCY
If your business has substantial debt that it is unable to pay, it may be necessary to consider bankruptcy for the business. Whether to file a business bankruptcy depends on many factors, including whether you or others may also be personally liable for the debt of the business. In reaching that decision, you should obtain the advice of legal counsel.
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