New Subchapter V Small Business Bankruptcy Reorganization

The Small Business Reorganization Act of 2019 (the "SBRA"), which went into effect on February 18, 2019, provides for simplified small business reorganization for individuals and business entities under the new subchapter V of chapter 11. Subchapter V resembles the provisions of chapter 12 for family farmers, but incorporates also some of the provisions that apply in a regular chapter 11.  The legislative purpose of the SBRA was to provide for a fast track for small businesses to confirm a plan of reorganization with the assistance of a subchapter V trustee. 

Eligibility

For the new subchapter V provisions to apply, the debtor needs to elect so on its petition. To be eligible for subchapter V, the debtor must be engaged in "commercial or business activities" and 50 percent or more of its debt must arise from its commercial or business activities. 

Debtor in Possession

Subchapter V provides for the debtor to remain in possession of its assets and to operate his or its business with the rights and powers of a trustee unless the Court orders otherwise.  

Upon the election under subchapter V, the debtor generally must file the following financial documents:

        1. most recent balance sheet

        2. statement of operations

        3. cash-flow statemen

        4. federal income tax return  

During the case, the debtor must file periodic reports which contain information regarding: 

    1. the debtor’s profitability 

    2. reasonable approximations of the debtor’s projected case receipts and cash disbursements

    3. comparisons of actual case receipts and disbursements with projections in earlier reports 

    4. whether the debtor is in compliance with Bankruptcy Code postpetition requirements 

    5. whether the debtor is timely filing tax returns and paying taxes and administrative expenses when 

        due

 

Subchapter V Trustee

A subchapter V trustee is to be appointed in all subchapter V cases.  The role of the subchapter V trustee is to monitor the case and to assist the parties in achieving a consensual subchapter V plan. The subchapter V trustee is to make the plan payments to the creditors under confirmed nonconsensual plans. 

Subchapter V permits, but does not require, the debtor to make adequate protection payments through the trustee. 

Subchapter V Plan 

Only the debtor may file a plan in a subchapter V case.  The plan must be filed within 90 days after the filing of the case unless the court extends the time period. Normally, the information that would typically appear in a separate disclosure statement is to be part of the subchapter V plan. 

The Bankruptcy Court may confirm the plan even if all classes of creditors reject it. Subchapter V also does away with the "absolute priority rule." But to be approved, the plan must comply with the new projected disposable income requirements.