Expanded Access to Streamlined Bankruptcy Relief for Small Businesses

In 2019, Congress passed the Small Business Reorganization Act (SBRA), which went into effect in Feb. 2020. SBRA provides that a small business debtor may elect to proceed under a new, streamlined Subchapter V of Chapter 11. The legislative purpose of the SBRA was to provide a fast track for small businesses to reorganize with the assistance of a trustee. SBRA’s key provisions streamline Chapter 11 as follows: 

1. A small business debtor can remain in possession (control) of its business and, if it pays its disposable income to creditors over a three-to-five-year period, it can obtain a discharge of its unsecured debts.
2. S. Trustee fees are waived
3. No creditor committee will be appointed, saving the debtor the expense of creditor committee’s counsel and professionals
4. A supervisory Subchapter V trustee assists the debtor to reorganize and obtain confirmation of a consensual plan
5. The time periods in Chapter 11 are greatly reduced, requiring filing a plan within 90 days

The primary limitation of SBRA has been that it did not apply to most small businesses because it had a “cap” on eligibility — only companies with less than $2,725,625 in total debt could file under Subchapter V. Any business above the threshold would have to file and pay for a conventional Chapter 11 case. Conventional Chapter 11 cases are unaffordable for many businesses and frequently fail to achieve reorganization, ending in liquidation of the business and loss of jobs and livelihoods.  

The CARES Act modifies section 1182(1) of the Bankruptcy Code to allow more businesses to use the more advantageous SBRA provisions of the Bankruptcy Code. The definition of eligible small business debtors is modified to allow businesses owing a total non-coronavirus debt of less than $7,500,000, subject to certain exceptions to use SBRA. Thus, many more businesses will be eligible and may reorganize under its provisions. 

To discuss this or related matters, contact J. Thomas Beckett at (801) 536-6603 or send an email to tbeckett@parsonsbehle.com or contact Brian M. Rothschild at (801) 536-6762 or send an email to brothschild@parsonsbehle.com.