The SBRA During the COVID-19 Pandemic

Published on 10/7/2020

On August 23, 2019 the Small Business Reorganization Act of 2019 (“SBRA”) was signed into law, adding Subchapter V to Chapter 11 (11 U.S.C. §§ 1181-1195). On February 3, 2020 the Trump Administration declared COVID-19 a public health emergency. Just two weeks later the SBRA went into effect. With the passage of the Coronavirus Aid, Relief and Economic Security Act of 2020, the Subchapter V debt limit was raised from the original $2,725,625 to $7,500,000, dramatically increasing the number of businesses and individuals that are eligible to elect Subchapter V.

The SBRA has shown to be prescient legislation with the advent of COVID-19 and the resulting economic downturn. According to the American Bankruptcy Institute’s statistics, as of September 30, 2020, there have been 957 Subchapter V cases filed nationwide, with 17 of those cases being filed in Washington State. Case filing statistics may be a sign of debtor success as the number of Subchapter V cases filed, nationwide, has increased each month since May. If this trend continues, a greater number of small business and individual debtors will look to Subchapter V for relief.

As we have detailed earlier on this blog the purpose for enacting the SBRA was to streamline both small business and individual Chapter 11 cases by making them faster and more cost-efficient. Congress sought to achieve this goal by significantly altering the plan confirmation process in the following ways:

• Allowing a bankruptcy court to confirm a “cramdown” plan even if all impaired classes reject it
• Dispensing with the absolute priority rule for “cramdown” plans
• Requiring the debtor to file a plan within 90 days after case filing
• Appointing a Subchapter V trustee to, among other things, facilitate a consensual plan
• Removing, in most cases, the committee of unsecured creditors
• Requiring a status conference “to further the expeditious and economical resolution” of the case
• Removing the requirement and expense of a disclosure statement, unless otherwise ordered by the bankruptcy court
• Eliminating United States Trustee fees

Bankruptcy courts remain open. We are able to file bankruptcy cases and represent our clients through telephonic court appearances.

To learn more about Subchapter V and how it may affect you, please contact Joe Sakay of Ryan Swanson’s Corporate Bankruptcy, Restructuring & Finance Group.

Additional COVID-19 Resources for Businesses

Please visit our COVID-19 Alerts and Resources for Businesses page for an updated list of local and federal resources, along with additional Ryan Swanson COVID-19 practice alerts.