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How Recent Changes to Federal Bankruptcy Law Could Help Protect Your Florida Small Business

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In 2019, Congress enacted the Small Business Reorganization Act (SBRA). This created a new provision of the federal Bankruptcy Code known as Subchapter V of Chapter 11. The idea behind Subchapter V was to give small businesses a “fast track” option for reorganizing themselves in bankruptcy without the need to go through the regular Chapter 11 bankruptcy process.

Due to the ongoing COVID-19 pandemic, which has forced many Florida small businesses to close or significantly reduced their operations, Congress passed the CARES Act. This new law included provisions that temporarily expand the scope of the SBRA to enable more small businesses to take advantage of the fast-track process.

Here are a few ways in which Subchapter V differs from the regular Chapter 11 process:

  • As noted above, the SBRA is designed to help small businesses reorganize. Of course, “small” is a relative term. Under the original provisions of the SBRA, a business debtor with less than $2,725,625 in total debts (secured and unsecured) was eligible to file for bankruptcy under Subchapter V. The CARES Act raised this threshold to $7.5 million.
  • In a regular Chapter 11 case, the bankruptcy court may appoint a trustee to take control of the debtor business’ operations. Subchapter V, in contrast, assumes the debtor will continue to run the business during the bankruptcy proceedings. The court will still appoint a trustee, but their role in a Subchapter V case is more akin to that of a consultant, i.e., someone to help the debtor formulate a reorganization plan.
  • Unsecured creditors usually have the right to participate in a Chapter 11 case through the formation of a “creditors’ committee.” In Subchapter V proceedings, however, no committee will be appointed unless the court decides it is necessary “for cause” in a specific case.
  • When filing a normal Chapter 11 reorganization plan, the debtor business must also submit a detailed “disclosure statement.” This statement is supposed to help creditors make an informed decision on whether or not to support the underlying reorganization plan. In a Subchapter V case, no disclosure statement is necessary, but the debtor business must still include “a brief history” of its business operations and other basic information as part of its reorganization plan.
  • Normally, creditors can vote on whether or not to “confirm” a proposed Chapter 11 reorganization plan. Such a vote is unnecessary in Subchapter V cases–the debtor alone can confirm a plan. That said, the debtor must still treat all creditors in a “fair and equitable” manner. And the bankruptcy court still must confirm the plan conforms to all federal bankruptcy requirements.

Speak with a Miami Chapter 11 Bankruptcy Lawyer Today

There is much more to Subchapter V and Chapter 11 bankruptcies than what was briefly described above. If your business is in financial trouble and you need advice on how Chapter 11 may help you reorganize, contact Miami Chapter 11 bankruptcy attorney Julia Kefalinos today at 303-676-9545 to schedule a consultation. Our office remains open for consultations and we can meet with you in-person, or via Skype, FaceTime, WhatsApp and other such video conferencing means while following all safety precautions recommended by the CDC.

Source:

law.cornell.edu/uscode/text/11/1190

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