Debtors Can Elect to Use the SBRA Provisions Even if the Case Was Pending Before Effective Date
By: Dean A. Langdon
On February 19, 2020 the Small Business Reorganization Act (SBRA) became effective, providing a streamlined, simpler Chapter 11 bankruptcy process for companies or individuals who have less than $2,726,625 of debt. A Chapter 11 debtor can elect one of three options: “regular” Chapter 11, “small business” Chapter 11, or “Subchapter V” Chapter 11. The SBRA created the Subchapter V option and permits approval of a plan without a formal disclosure statement, and even without any class of creditors voting to approve the plan. It eliminates the appointment of a committee of unsecured creditors and instead provides a trustee will be appointed to help the debtor accomplish a reorganization. A status conference must be held within 60 days after a case is filed, and a plan must be filed within 90 days after the case is filed, a shorter time frame than in other Chapter 11 options.
One issue the new law doesn’t specifically address is whether a debtor in Chapter 11 prior to February 19th can switch, or “convert”, to the new Subchapter V option. A judge in Santa Ana, California recently ruled that such a switch was possible, although he ruled that the proper procedure was not to request a “conversion,” but to file an amended bankruptcy petition and choose, or “elect”, Subchapter V status. This is because the rules of bankruptcy procedure permit a debtor to make amendments to their bankruptcy petition (and other papers) without pre-approval, although other parties may object once a debtor notifies them of the amendment.
Ruling as it did, the California bankruptcy court did not have to address any potential objections to the debtor’s election to proceed under Subchapter V. However, the court opined that if any party would have rights which previously vested in the case, and the new election affected those vested rights, due process might require the election to be reversed. The court also noted that Subchapter V deadlines such as holding a status conference 60 days after a case is filed and filing a plan 90 days after a case is filed could be problematic. (The case before the judge has been filed in 2018). However, the provisions of Subchapter V permit a court to extend the deadlines, as long as any delay is not attributable to a debtor. The court in this case did not rule on those issues since no request to extend the deadlines was before it.
If you or your company are currently in a Chapter 11 case, and fall within the debt limits for a “small business” debtor, you may be able to save substantial time and money by electing to proceed under Subchapter V because the process is greatly streamlined. The SBRA should not only provide affordable, effective bankruptcy relief for many small businesses, it can also help those already in Chapter 11 who qualify for Subchapter V. Please give us a call at DelCotto Law Group if you would like to review your options under the SBRA.
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