Long Island businesses are defying a national trend toward increased bankruptcy filings, with only a handful of companies seeking protection from creditors or to liquidate businesses in the Central Islip court.
Moustache Brewing Co. in Riverhead is one of the few. The single-store brewery this month filed for Chapter 11 bankruptcy seeking protection from creditors after a COVID-related shutdown in March and a potential judgment in state court relating to a 2018 renovation loan.
It’s one of the few Long Island businesses so far that have opted to go to bankruptcy court for protection from creditors as they seek to reorganize their businesses during the pandemic. In the past month, just seven companies on Long Island have filed for Chapter 11 protection in the Central Islip bankruptcy court, including one entity with four separate but related filings. Excluding the related businesses there were just three Chapter 11 filings this month. For all of July in 2019, there were five Chapter 11 filings in Central Islip.
The figures do not include bankruptcy filings in the Brooklyn federal court house.
Separately, Chapter 7 liquidation filings for businesses are also relatively few this summer— only eight business entities filed for Chapter 7 as part of a liquidation of their business in July, including a dentist, a computer learning center for children and SDC Enterprises, which provided drives, brakes and controls for elevators. In July of 2019, 11 companies filed in Central Islip for Chapter 7 liquidation, court records show.
Across the nation, business Chapter 11 filings, which allow companies to continue to operate while they attempt to reorganize, are up sharply. In June, 609 were reported across the U.S., compared with 424 for the month last year, according to the American Bankruptcy Institute. For the first six months of 2020, some 3,604 U.S. companies have filed for Chapter 11 bankruptcy protection, compared with 2,855 for the first six months of 2019.
Robert Solomon, a Long Beach lawyer specializing in bankruptcy law, said filings to date may be relatively scarce because "companies are limping along with the PPP loans," referring to the federal loans to cover wages and rent. "Once they've decided to throw in the towel, they are looking to get off the hook with their landlord," but small businesses wouldn't necessarily need to go to the courts to do so.
"They're looking for other ways to wind down the business," he said. "If they can arrive at a resolution with major creditors and are responsible, that's better than using bankruptcy."
Moustache Brewing was formed in 2012 in a 1,400-square-foot space capable of producing 31 gallons of beer. It expanded to its current Riverhead space of 5,600 square feet in October 2017 and began a costly renovation with $415,000 borrowed from friends and other higher-interest loans, according to the bankruptcy filing.
But the upgrade cost more than planned, and the higher-interest loans impacted the company’s cash flow, the filing states. A pandemic-mandated shutdown made matters considerably worse.
Lauri Spitz, a managing member and co-owner of the company, said COVID hit Moustache Brewing particularly hard.
“We came out of the winter, our slowest time of year, and we were shut down for three months,” she said Tuesday. “Half of my accounts are closed. I had to lay off half my staff…With all the restrictions in place our income is significantly decreased.”
Jonathan Grasso, an attorney for Moustache Brewing, said the brewery will continue to operate through the reorganization.
“The plan is to ... reorganize the debt, and continue to operate,” he said. “The brewery is open, and we’re hoping to work toward a consensual plan of reorganization.”
In March, the company says in filings, it was “prepared to enter into a new distributorship agreement that would have greatly increased its sales.” Then came the pandemic, and "the distributorship agreement had to be delayed.”
Moustache “was completely shut down from early April until Memorial Day weekend, when it opened for to-go sales only.” The need for the bankruptcy filing is “due to its cash flow issues due most recently to its extended shutdown as a result of COVID-19, and to save resources, time and energy being spent on litigation claims against” Moustache, the filings state.
The company reported a net operating loss of $156,407 for the six months ended June 30, on total sales of $99,742.
For now, Moustache appears to be one of the local few companies seeking to reorganize under Chapter 11 bankruptcy protection. In addition to the seven cases reported in the Central Islip court from late June through July 27, two were reported through June, three in May, and six in April. Those six filings in April were all affiliates of Rubie’s Costume Co., of Melville, a wholesaler of costumes and related items throughout the world.