February 19, 2020Client Alert

The Small Business Reorganization Act Takes Effect Today

On August 23, 2019, Congress passed, and the President signed into law, Public Law 116-54 known as the “Small Business Reorganization Act of 2019” or “SBRA.”  It takes effect on February 19, 2020. The SBRA adds a provision (namely subchapter V) to Chapter 11 of the U.S. Bankruptcy Code to make the reorganization process less complicated, and thus less expensive, for small businesses. The Act generally defines a small business as a debtor with less than approximately $2.7 Million of secured and unsecured debt.

Some key provisions of the new subchapter V of Chapter 11 include unique small business provisions such as allowing the owner of the small business debtor to retain a stake in the company. In doing so, the Act eliminates the Absolute Priority Rule (APR) as applied to unsecured creditors that required they be paid before a debtor could own assets; the APR continues to apply for secured creditors however. Also important is that only the small business debtor may file a plan under subchapter V.

In addition to the small business friendly reorganization provisions, the Act also streamlines the process. For example, there are no unsecured creditor committees or lengthy disclosure statements required. The process is also accelerated, with an initial status conference required within 60 days and a reorganization plan required within 90 days of commencement.

For more information, please contact John D. Finerty, Jr. or another attorney in Michael Best’s Banking & Financial Services Industry Group.

back to top