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Subchapter V Bankruptcy Cases: Recent Developments

June 11, 2021

By: Mark Haut, Practical Guidance

This article provides an update on several developments that have occurred since the Small Business Reorganization Act of 2019 (SBRA) became effective on February 19, 2020. The SBRA created a new bankruptcy option under Chapter 11, known as Subchapter V, which allows small business debtors to address their outstanding liabilities in a fast and efficient, modified Chapter 11 proceeding. The goal of the SBRA is to improve the reorganization process for small business Chapter 11 debtors.

THE SBRA BECAME EFFECTIVE JUST IN TIME TO ASSIST small business debtors in dealing with the COVID-19 pandemic. Since the SBRA effective date, new legislation has been enacted that temporarily amends Subchapter V. These amendments are intended to address the economic effect of the pandemic. This article provides an overview of Subchapter V and a summary of these legislative changes and the new body of case law interpreting Subchapter V.

Subchapter V Overview

The SBRA added Subchapter V to Chapter 11 of the Bankruptcy Code. The SBRA does not repeal existing Chapter 11 provisions regarding small business debtors, but instead creates an alternative procedure that small business debtors may elect to use (if eligible). Small business debtors now have the option of filing a Chapter 11 petition and proceeding under Subchapter V. The SBRA’s addition of Subchapter V, among other things, (1) provides for the appointment of a trustee to assist the Subchapter V debtor that remains in possession, (2) requires the debtor to pay its disposable income to unsecured creditors over three to five years, (3) protects secured creditors with the same cramdown protections as in traditional Chapter 11, and (4) allows the debtor to keep its business. CLICK HERE TO READ THE FULL ARTICLE IF YOU ARE A PRACTICAL GUIDANCE SUBSCRIBER