Attorneys have Thoughts Too
The Small Business Reorganization Act of 2018 ("SBRA") was introduced in both chambers of Congress as H.R. 7190 and S.3689 during the 115th Congress. While it did not get signed into law it is a good idea.
The SBRA aims to simplify the bankruptcy process for "small business debtors," the term is defined by the bill, that realistically would be better off in a chapter 13 bankruptcy but because of debt limit issues are forced into a chapter 11. After reading the text, I came up with the 6 most important changes that I believe this bill will institute:
1. A trustee would be appointed in every case.
This is important because in most cases the debtor would be better off having a trustee appointed and handling a lot of the tedious work that becomes burdensome and expensive. Small business debtors typically do not have the same capabilities as the multi-billion-dollar institutions that they are lumped in with.
2. The unsecured creditors’ committee would be eliminated unless cause is shown why it should be convened.
Realistically this is not a huge deal because small business debtors tend to have fewer creditors in general, but it does eliminate a procedural issue and should streamline the process.
3. Only the Debtor can propose a plan and the plan must be filed within 90 days unless the court extends the time.
Currently, a small business debtor has 180 days to file a plan; upon expiration of that time frame, any party in interest, under certain circumstances, has the ability to file a plan. This has the potential to create dueling plans, one proposed by the debtor and another proposed by creditors, which creates problems for confirmation. With the proposed changes the case would function more like a chapter 13 case.
4. The need for disclosure statements and solicitations are eliminated unless cause is shown why the court should require them.
Potentially this could be huge and bring the confirmation process in line with chapter 13 but I could see courts issuing first day orders requiring both. If the court does not, it appears to shift the burden to the creditors to object to the plan if they do not agree with their treatment.
5. Property of the Estate is determined based upon how the plan is confirmed.
If a debtor can avoid having to resort to the “cram down” provisions of confirmation then property of the estate would be limited to prepetition property just like in chapter 7 cases, whereas if a debtor cannot get the creditors to agree to their treatment then property of the estate is expanded to include post-petition earnings and assets. This provides a HUGE incentive for debtors to get creditors to agree to the plan.
6. The Discharge would not be delayed.
This is another major incentive for the debtor to avoid the “cram down” provisions of confirmation. If the debtor can get the creditors to agree to their treatment then they will receive their discharge at confirmation and will not have to wait until completion of payments under the plan.
While the Small Business Reorganization Act of 2018 did not pass, the Small Business Reorganization Act of 2019 has been introduced in the Senate. Unfortunately, a companion bill has not been introduced in the House yet.
Jeffrey Lampley, Esq.
I am attorney in Southwest Florida who practices in the areas of Business Law and Bankruptcy. This Blog is a combination of useful information and my thoughts on life. Enjoy.