American Airlines…Enron…General Motors…
Those names are synonomous with chapter 11 bankruptcy. To most people, “chapter 11 bankruptcy” means a sweeping, global restructure of a multi-billion dollar, international conglomerate.
But now, as long as your business is not a single-asset real estate operation, your business may qualify for the sweeping protections afforded by filing for a chapter 11.
These protections are found in the Small Business Restructuring Act (SBRA), commonly known as Subchapter V, referring to new Subchapter V of Chapter 11 of the Bankruptcy Code. Subchapter V arrived (with impeccable timing) in February, 2020 and a large number of small businesses are expected to file as the country recovers from the COVID-19 pandemic.
The best part? You will not be subjected to many of the tortures that large companies face during a traditional restructure, specifically, no creditors committee, no competing chapter 11 plans, no disclosure statements, legal fees that are a fraction of the usual market rate, and control over your own assets. Even better is that the process moves along very quickly, even by bankruptcy court standards.
Only a business debtor with non-contingent, secured, and unsecured debt less than $2,725,625 may qualify for a Subchapter V case. However, on March 27, 2020, Congress increased the cap to $7,500,000 for one year as part of the Coronavirus Aid, Relief, and Economic Stability (“CARES”) Act.
Generally, federal district court moves faster than state court, bankruptcy court moves faster than federal district court, and cases electing to proceed under Subchapter V move fastest of all. Your bankruptcy judge will hold a status conference within sixty (60) days of the filing date. Fourteen (14) days prior, the debtor must report in writing on the efforts made to draft and execute a consensual plan with creditors. Said plan is due within ninety (90) days of case filing. As mentioned above, a plan may be filed by the debtor only. This is a huge benefit to the debtor because in a traditional chapter 11 case creditors and other parties-in-interest may file competing plans, which consumes incredible time and expense.
Another time-saver and money saver for the debtor is that there is no requirement for the debtor to file a disclosure statement. In a traditional chapter 11 bankruptcy a debtor would file a disclosure statement to give the creditors enough documentation and background to vote for or against the chapter 11 plan. Long delays and expensive disputes are commonplace at this stage in the case, but not so for a case under Subchapter V.
Subchapter V plans can be confirmed even without acceptance by creditors. Subchapter V is almost like a business version of chapter 13, insofar as plan “provisions” are similar. For example, Subchapter V allows the debtor to contribute all “projected disposable income” to making plan payments for a period of thirty six (36) to sixty (60) months, similar to chapter 13. Also, a creditor must receive as much value as they would if the debtor were liquidated in a chapter 7.
A proper consideration of Subchapter V requires, of course, a much deeper dive than what is presented here. However, it is clear that Subchapter V offers business debtors the same peace of mind that chapter 13 offers consumer debtors. They are in the driver’s seat and the creditors, at least until a body of case law builds up, have to sit and wait their turn at the table.