The Small Business Reorganization Act (“SBRA”) recently went into effect to eliminate many procedural hurdles small businesses otherwise needed to clear in typical Chapter 11 bankruptcy cases. This new act created a Subchapter of the Chapter 11 (known as “Subchapter V”) to simplify the Chapter 11 bankruptcy process for most small business debtors, by reducing the cost and expense of small business bankruptcy reorganizations and increasing accessibility to the Bankruptcy arena for small business owners.
Small businesses with less than $7.5 million in debt are generally eligible for relief under Subchapter V.
Subchapter V restructurings are similar to Chapter 11 bankruptcies in that businesses, or individuals with primarily business debt, have the option of selling off assets to reduce debts, funding a reorganization plan with future income or conducting a liquidation of desired assets. The plan of organization must be feasible and fair, filed in good faith, and in the best interest of the creditors. Lastly, Subchapter V businesses also have the protection of the Bankruptcy court and receive much needed flexibility from creditors.
There are several unique benefits to filing a Subchapter V reorganization case vs. a traditional Chapter 11 bankruptcy. Overall, the hallmarks of a Subchapter V case are to offer a faster, more efficient bankruptcy process. For example, a plan of reorganization must be filed with the bankruptcy court within 90 days of the commencement of the case. This helps prevent cases from lingering in bankruptcy, which in turn greatly reduces the risk of unnecessary legal fees and other costs. In addition, certain burdensome documents like disclosure statements, do not need to be drafted as they do in a traditional Chapter 11 bankruptcy.
Most importantly, an independent trustee gets appointed to every Subchapter V case. These trustees typically have a tremendous amount of experience in the corporate bankruptcy arena. In that regard, they offer an element of the bankruptcy process that is usually reserved for large Chapter 11 cases, which have the means to engage independent financial advisors. Once appointed, the trustee will facilitate and develop a consensual plan of reorganization among the company’s creditors. They not only help guide the debtor through the process, but they bring a skillset that a small business would otherwise not be able to afford. Subchapter V also excuses the small business debtor from paying costly fees to the Office of the United States Trustee on a quarterly basis.
Our highly skilled team at Dal Lago Law has filed one of the first Subchapter V case in Southwest Florida, when the law came into effect on February 19, 2020. This experience coupled with the customized, legal, business and bankruptcy knowledge we have provided clients over the last 20 years gives us the unique expertise to help you navigate these complex matters and deliver positive results.