Some recent – and significant – new amendments to the US Bankruptcy Code, already of interest to small businesses before the COVID-19 pandemic, provide further relief to small businesses under Congress’ recent CARES legislation.
In late 2019, Congress passed bipartisan legislation providing for a new subchapter of “small business” Chapter 11 bankruptcy cases. Those amendments went effective as of February 19, 2020.
The recently amended Bankruptcy Code’s Chapter 11 now has a new “Subchapter V” of (also known as the Small Business Reorganization Act). This subchapter is focused on “small businesses,” and has some unique features, including but not limited to:
Under the new law, a business can choose to reorganize as a designated “small-business” case if:
Individuals (i.e., sole proprietors) who meet these criteria can also make a “small business” election.
“Small Business” Reorganization:
Under the Code’s new provisions:
In passing this legislation, one of Congress’ primary objectives was to provide small businesses with more cost-effective access to Chapter 11 relief. The amendments further recognize the reality that continued operation of a smaller business is often critical to the livelihood of its owners.
Like any legislation balancing the rights of debtors and creditors, the Small Business Reorganization Act embodies a series of trade-offs. For example:
What such “circumstances” entail is unclear at this point and will be for the courts to work out.
Again, the precise nature of the Trustee’s “facilitation,” and what it will look like in each case, is unclear. But in subchapter V (as in life), “luck favors the prepared.” In other words, it is best practice to commence a Chapter 11 case with a working and well-developed reorganization plan.
Notably, these 2019 provisions serve as an alternative to the Code’s currently existing ‘small business’ Chapter 11 provisions.
Small businesses that may find themselves struggling or potentially at risk have a growing set of insolvency tools available to assist with a reorganization. To make the most effective use of these tools and evaluate the options that may be best suited for your circumstance, contact AlvaradoSmith at 714-852-6800 or contact Bankruptcy attorney Michael D. Good at firstname.lastname@example.org.
Michael D. Good has extensive experience with numerous complex reorganization, liquidation, and municipal insolvency proceedings under the United States Bankruptcy Code, as well as with out-of-court restructurings. He has represented a wide variety of corporate debtors, creditors’ committees, individual creditors, investors, and other parties across a broad range of industries.
DISCLAIMER: The information contained herein is intended for informational purposes only and should not be construed as professional counsel or legal advice. Seek legal counsel for advice with respect to any legal matter. The information in this document may not reflect the most current developments as the subject matter is extremely fluid and may change daily. The content and interpretation of the issues addressed herein are subject to change.