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No. Under the subchapter V in Chapter 11, there will be no committee of creditors. This provides several advantages, including the reduction of overall costs, since the estate will not need to pay counsel for the creditors’ committee.

How Do The SBRA’s Amendments Streamline The Plan Confirmation Process And Potentially Reduce The Plan Confirmation Costs As Well?

The SBRA drastically speeds up the process of chapter 11, as it requires that a plan be proposed within 90 days, as opposed to the old requirement of 300 days. This means the bankruptcy will be shorter, which translates to fewer costs. Subchapter V also removes the requirement for a debtor to file a disclosure statement along with the plan, which would typically require approval, and slow the process.

How Does the SBRA Relax The Requirements To Confirm A Plan?

The SBRA makes the confirmation of a plan easier in a couple of different ways. First, the trustee who was appointed in a subchapter V case is different from other trustees you might see in some other chapters. Typically, in chapter 11, the debtor in possession acts as the trustee. In other words, the debtor is both the trustee and the debtor in possession. In subchapter V, the debtor remains the debtor in possession but there’s also a trustee appointed, whose goal is to help the debtor create a consensual plan. A “consensual plan” is a plan which is agreed upon by the debtor and all classes of creditors. Subchapter V also allows for confirmation of a plan even over the objections of all the classes of creditors, whereas in a typical chapter 11, the debtor is required to obtain the consent of at least one class of creditors whose rights are being affected in order to approve the plan. The SBRA also eliminates the “absolute priority rule,” which means there’s a much higher likelihood of the owners retaining their equity in the discharged entity, which increases the incentives for owners to come up with a workable plan that can be confirmed.

What Is The CARES Act And How Does That Work With The SBRA?

The CARES Act addressed multiple matters, including temporary changes to the SBRA in subchapter V. The CARES Act increased the debt limit requirement to qualify as a small business debtor from $2.7 million to $7.5 million. Therefore, a much larger percentage of potential business debtors qualified under the SBRA due to the CARES Act.

How Long Is The CARES Act Set To Stay In Place At This Time?

The CARES Act changes to the SBRA are temporary, and effective until March 27, 2021. After that, the debt limit for subchapter V debtors may return to the previous $2.7 million limit. However, comments from judges and others involved in this process indicate that Congress may decide to make this increased limit permanent, but there is no guarantee.

Is Filing Now Under The CARES Act And SBRA The Best Option For Every Small Business That’s Looking To File Bankruptcy?

For most people, this is the ideal time to file if your debt is less than the $7.5 million limit increased by the CARES Act, because, as stated previously, this higher debt limit is temporary. If you are considering bankruptcy, I suggest an evaluation of the business prospects performed by counsel and accountants to determine if bankruptcy would be the best route, and which chapter to file. Each situation is unique and must be thoroughly examined to decide the best course of action.

For more information on Small Business Reorganization Act In Alabama, a personalized case evaluation is your next best step. Get the information and legal answers you are seeking by calling (205) 506-3354 today.

John W. Clark

Call Us Now For A Personalized Case Evaluation
(205) 506-3354