By chance, on February 19, 2020, shortly after the confirmation of the first case of the COVID-19 virus (the “Virus”) in the United States, the Small Business Reorganization Act (“SBRA”) became available as debt. . relief for small businesses. The aim of the SBRA is to reduce the high costs of reorganization proceedings for small business debtors, to improve the prospects for success of these businesses and to simplify the process.
The SBRA was not enacted in response to the expected severe economic impact of the virus, but its availability is timely as a form of debt relief for small businesses affected by the virus. Indeed, the National Bankruptcy Conference recently sent a letter to Congress calling for an increase in the eligibility threshold for debt under the SBRA to $ 7.5 million or more to help more businesses suffering from economic side effects. “social distancing”, mandatory closures and on-site shelters. orders. Currently, a “small business debtor” eligible to file under the new SBRA limits is a debtor with total debts of $ 2,725,625 or less (see 11 USC § 101 (51D)) .
The SBRA adds a new subchapter V to chapter 11. Notably, the SBRA removes some traditional obstacles to confirming a reorganization plan under the Bankruptcy Code, such as (1) the top priority rule (i.e. (ie, creditors must be paid before shareholders retain ownership rights) and (2) the requirement that a deficient acceptance category must vote in favor of the scheme. These changes, among others, allow a faster, easier and more profitable path to confirmation of a plan and, in turn, to the successful reorganization and rehabilitation of a struggling business. The bankruptcy court has yet to determine that the plan does not unfairly discriminate and is fair to creditors, but these tests are easier to meet for a debtor.
Three other new debtor-friendly changes are important: First, an expensive disclosure statement is not required as part of the plan confirmation process. Second, only the debtor can file a plan. Third, an unsecured creditors committee can only be appointed by court order. These three changes are expected to reduce the time and cost of the reorganization process while providing more control for the small business debtor.
Finally, under the SBRA, a trustee is appointed to oversee the case and help the debtor negotiate the terms of the plan with the creditors.
The current health crisis is causing an economic downturn and putting incredible stress on small businesses. SBRA is a timely drug to help struggling businesses in these uncertain and difficult times.
- “First case of novel coronavirus 2019 in United States,” The New England Journal of Medicine, March 5, 2020 https://www.nejm.org/doi/full/10.1056/NEJMoa2001191 (first case confirmed on January 20, 2020).
- See legislative history “HR 3311, the“ Small Business Reorganization Act, 2019 ”. The SBRA requires that at least fifty percent of a small business debtor’s debt arises from commercial or commercial activities. Current section 101 (51D) defines a “small business debtor” as one who has comprehensive, unconditional, liquidated, secured and unsecured debts of $ 2,725,625 or less.
- “Bankruptcy Professionals Want Expanded Protections to Reduce Coronavirus Impact,” The Wall Street Journal, March 23, 2020, https://www.wsj.com/articles/bankruptcy-pros-want-protections-broadened- to-blunt-coronavirus- impact-11584978603.