Thought Leadership

By the Small Business Reorganization Act of 2019, which became effective February 1, 2020, a new Subchapter V was added to Chapter 11 of the Bankruptcy Code, which relieves debtors of certain requirements, with the intention of streamlining Chapter 11 cases for small business debtors with debt below a specified threshold. (Under the CARES Act, the threshold was increased from approximately $2.73 million to $7.5 million, until March 21, 2021.)

While the Payroll Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (CARES) has captured the headlines these past few days, this amendment to the 2019 Small Business Reorganization Act (SBRA) that went into effect on February 19, 2020, should not be overlooked by small businesses. For the next year, small businesses with $7.5 million or less in debt can qualify for streamlined and less costly restructuring provisions under Chapter 11 of the Bankruptcy Code. For small business owners, what is most appealing is that they can do so with the ability to preserve their ownership interests even over the objection of creditors, in exchange for roughly three years projected disposable income (net profit). For many debtors that will be looking to rebuild their business in the wake of the COVID-19 pandemic, projected disposable income over a three-year period may be a fraction of current, outstanding debt. These new provisions could not come soon enough.