The Small Business Reorganization Act
In 2019, Congress passed the Small Business Reorganization Act ("SBRA"). It is intended to streamline the current bankruptcy procedures to help small business achieve restructuring.
Chapter 11 of the Bankruptcy Code is a complex system that allows businesses to reorganize its debts. However, it was intended for multi-million dollar companies, not mom and pop small businesses, despite containing several provisions specifically designed for small businesses. Chapter 11 bankruptcy contained many hurdles for the small business debtor, such as high costs, monitoring difficulties, and procedural roadblocks. The SBRA has been added to Chapter 11 as of February 2020, intending to help small business owners restructure debts, reduce liquidations and maintain equity in the hands of the small business owners.
Key Provisions of the Small Business Reorganization Act:
- Improve the Debtor's Ability to Successfully Reorganize and Retain Control of the Business
- Only the small business owner may file a plan of reorganization under the SBRA.
- The small business owner may retain a state in the company so long as the reorganization plan does not unfairly discriminate against creditors.
- If the trustee or an unsecured creditor objects to the reorganization plan, the court cannot approve the plan unless it provides that all of the business' projected disposable income will be applied to make payments under the plan, which would be for a period of 3-5 years.
- Reduce Unnecessary Procedural Burden and Costs Usually Associated with Chapter 11 Cases
- An official committee of unsecured creditors will not be appointed and a disclosure statement is not required, two things which are required in a Chapter 11 case and make a plan difficult to confirm.
- Increased Oversight and Ensured a Quicker Reorganization
- A trustee is appointed similar to how one is appointed in a Chapter 13 bankruptcy to help ensure the reorganization stays on track and a plan is confirmed.
- The small business debtor must file a plan within 90 days of commencement of the case.
- An initial status conference would be required in every case within 60 days of commencement of the case to further an expeditious and economical resolution.
This means that you can keep your small business open, reorganize the business' debts and keep your ownership. Basically, you'd be paying back all or a portion of your debts over a 3-5 year period. At the end of the bankruptcy, any unpaid debt goes away.
If you have a business that is struggling and you're not sure what to do, call us today for a free no obligation consultation with an attorney to discuss your options.