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Small Business Reorganization Act: Let the Cases Begin

By: Laura Day DelCotto

Bankruptcy Judge Robert Grossman in the Eastern District of New York recently issued one of the first substantive court decisions. This decision was regarding the new Small Business Reorganization Act. This is commonly called the “SBRA”, which became effective on February 19, 2020. The SBRA is now receiving much more interest and renewed appreciation. This is due to the increase in the debt limits contained in the CARES Act of March 27, 2020.

As originally enacted, the debt limits to be eligible for SBRA election were relatively small. To be permitted to proceed in this “simplified chapter 11 process,” the maximum debt was defined as being aggregate, non-contingent, liquidated secured and unsecured debt of less than $2,725,625.  This is found in an amendment to Bankruptcy Code Section 101(51D)

CARES ACT – Coronavirus Relief

The CARES Act of March 27, 2020 enacted a one year increase in the debt limit to $7,500,000. This almost $5 million difference will be very meaningful to many small businesses since often we see cases in this range of debt.  It is important to note that the CARES Act amendment expressly “sunsets” as of March 27, 2021, one year after its enactment. We encourage all small businesses who exceed the $2.7 debt level, but below the one-year $7.5 debt limit, to mark this date on your calendars.  

Judge Grossman comments on several points in the case, In re Ventura.  First, that “Congress recognized that many of the benefits afforded to large corporate debtors under chapter 11 were for all practical purposes out of reach of smaller businesses. Chapter 11 is often an expensive and highly complicated proposition.

Many small businesses have neither the money nor the time to navigate the process….”. The SBRA has numerous differences from a regular chapter 11, all meant to save time and money in a more streamlined and debtor-friendly process. It is a very significant new tool for small businesses and their owners.

Second, Judge Grossman provides some detailed background on the passage of the Act and certain of its legislative history, including that “small businesses form the backbone of the American economy.” The full opinion is well worth reading.

In these fiscally problematic times, the meaningfulness of the SBRA is going to become increasing apparent and worthwhile as many small business owners explore their options. We encourage you to contact a bankruptcy attorney to gain a full understanding of what the SBRA may be able to do for you. 

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email info@dlgfirm.com or reach us on our contact page.

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