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Small Business Reorganization Act:

Saving Money for Small Businesses

By: Laura Day DelCotto

The Small Business Reorganization Act (also commonly known as the “SBRA”) came at the exact right time. With everything else that has gone wrong in 2020, this is hopefully something that went right. Time will tell as the bankruptcy courts across the country begin to issue decisions. DelCotto Law Group is following the cases nationwide, so we can help develop the local processes for the benefits intended: to help small businesses afford the “tool” known as chapter 11 reorganization.  

Another favorable debtor case has been issued out of the Eastern District of North Carolina. In In re Penland Heating and Air Conditioning, Inc., Case No. 20-01795 (Bankr. E.D.N.C. June 11, 2020), the Bankruptcy Court ruled that the Subchapter V trustee does not “routinely” and “as a matter of course” have the ability to hire counsel to represent the trustee. This would be a large added cost to the debtor’s case if trustees hire counsel in every single case.

SBRA Statutes

The SBRA statutes are found in a newly enacted sub-part of the Chapter 11 statutes, Subchapter V, located in 11 U.S.C. Sections 1181-1195. Hence, the cases themselves are being commonly called “SubV” cases in bankruptcy parlance. There is no creditor committee, but there is a panel trustee in each case. The trustee’s job is to “facilitate” a reorganization and to “monitor” the debtor’s consummation of its plan. The Penland decision noted that an attorney is not necessarily required in order for a trustee to “monitor” and “facilitate.”Going further, the judge issued a warning to “overzealous and ambitious Subchapter V trustees that unnecessary or duplicate services may not be compensated, and other fees incurred outside the scope and purpose of the SBRA may not be approved.”  

The courts, the debtors’ counsel and the SubV trustees will continue to develop the local practices that support the exact meaning, processes and procedures in these new types of cases. They are a very important tool to small business debtors (both individuals and corporate) with debt less than $7.5 million. The ability to reorganize and continue in business is significantly enhanced.

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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