Subchapter V’s Impact On Small Business Reorganization – Insolvency/Bankruptcy/Re-structuring

United States: Impact of sub-chapter V on the reorganization of small businesses

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Just over a year ago, as the country entered a period of unprecedented turbulence caused by the COVID-19 pandemic, the Small Business Reorganization Act (SBRA) came into force on February 19, 2020. Before the SBRA, troubled businesses considering bankruptcy had two options: Chapter 7 or Chapter 11. The SBRA provides an additional option for businesses seeking to reorganize by adding subchapter V to the bankruptcy code, which offers small business debtors the option of continuing with Chapter 11 restructuring under the laws and rules of (a) “traditional” Chapter 11 or (b) Subchapter V.

The SBRA was designed to provide certain benefits to small businesses pursuing a reorganization by reducing costs and simplifying the plan confirmation requirements of Chapter 11. To this end, debtors proceeding under Subchapter V may benefit from ” a streamlined reorganization process that includes no disclosure or creditors committee reporting requirements, competing plans or quarterly U.S. Trustee fees, payment of administrative expense claims during the life of a subchapter plan V, abolition of the rule of absolute priority.

As originally enacted, a debtor was eligible for Subchapter V if it owed less than $ 2,725,625 in unconditional, liquidated, secured and unsecured debt. Subsequently, the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, increased the eligible debt ceiling to $ 7.5 million until the 27th. March 2021. On February 25, 2021, it was reported that Senators Dick Durbin (D-IL) and Chuck Grassley (R-IA) introduced legislation to extend the expiring debt ceiling for an additional year, until until March 27, 2022. If implemented, the new law, the COVID-19 Bankruptcy Relief Extension Act, will provide additional relief for small businesses that continue to face economic challenges due to the COVID-pandemic. 19 in progress.

In this month’s issue of RJC, we explore the first year of Subchapter V, starting with an article by Neil McCullaugh, Karl Moses and Chris Hurley of Spotts Fain PC, which highlights the benefits of Subchapter V for small business debtors, goes into reviewed the data available regarding its use so far and addresses various related issues arising for the bankruptcy courts responsible for rendering decisions regarding the statutes of the SBRA.

Next, Diana McGraw of Fox Rothschild LLP examines the role of the trustee in Subchapter V affairs. McGraw concludes that as small businesses face economic hardship, it is vitally important that they understand the central role the fiduciary and other tools that help promote the statutory purpose of the SBRA.

Parker Poe’s Chip Ford and Ashley Edwards focus on what turnaround professionals need to know about Subchapter V and its potential benefits in a post-pandemic economy. In doing so, they highlight areas that make Subchapter V an attractive option for small businesses looking to reorganize and highlight remaining questions about how Subchapter V is used most effectively by small businesses. and their professionals.

Next, Liz Boydston and Trinitee Green of Polsinelli explain that bankruptcy courts interpreting Subchapter V appear to be friendly with small business debtors pursuing reorganization goals in good faith. Their article discusses several new legal issues that frequently arise in Subchapter V cases and provides a chronology of decisions rendered by bankruptcy courts interpreting new statutory provisions enacted through the SBRA.

Finally, Kumar Singla of Sherwood Partners and Erik Weinick of Otterbourg PC explain why Subchapter V procedures and Assignments for the Benefit of Creditors (ABC) may present viable alternatives for small and medium debtors in certain situations. Their article offers a comparative analysis between various restructuring strategies, taking into account various factors such as speed and simplicity, risk control and mitigation, value and expense.

Originally posted by Recovery management association.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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