New Business Bankruptcy Laws Coming in 2011?
Will the Small Business Jobs Preservation Act Change the Bankruptcy Laws in 2011?
It has long been suggested that struggling small businesses have little potential to reorganize by virtue of traditional Chapter 11, which was designed more for manufacturing giants than the local diner. Typically, attorney costs, large creditor leverage and the administrative drains on management overwhelm and ultimately doom a small business. Some of these concerns were addressed in the 2005 amendments to the U.S. Bankruptcy Code, but those arrive with a mixed bag of effects.
Before Congress now is the ‘Small Business Jobs Preservation Act of 2010’ [S. 3675], sponsored by Sen. Sheldon Whitehouse [D-RI]. This proposed legislation would amend Chapter 11 of title 11 by creating a subchapter V. Generally, the proposed subchapter V allows for small businesses with no more than $7,500,000, excluding insider debt, to receive a discharge by having a trustee appointed that would monitor and ultimately, distribute all of the small business enterprise debtor’s (“SBE”) disposable income over the next three to five years (“Super” cramdown). Essentially, it would seem, the Plan administration of the case would mirror that of a typical Chapter 13, with the Absolute Priority Rule surviving for secured creditors, wherein those creditors would have to receive as much as they would receive in a Chapter 7 liquidation.
Some of the advantages and disadvantages (from Debtor’s perspective):
| ADVANTAGES | DISADVANTAGES |
| “Super” cramdown available for non-consensual plan in exchange for 100% of disposable income over 3-5 years | Plan must be filed within 90 days of petition date unless enlarged by Court for cause. |
| No Disclosure Statement required | Plan must include additional disclosures and projections to offset lack of disclosure statement |
| Failure to vote for Plan is treated as an acceptance | Must comply with Small Business reporting requirements, including duplicitous monthly reports |
| Professionals are not disqualified from representing debtor if they are owed only $5000 or less | Plan must provide for appropriate remedies upon default, most likely interpreted to be a forced liquidation |
| No exclusion of single asset real estate cases | Standing Trustee appointed and may replace Debtor-in-possession ‘for cause’. |
| No Quarterly Fees | No Co-debtor stay |
Subchapter V is a work in progress, currently in front of the judicial committee and is therefore, subject to change. The 2005 Amendments extended a helping hand to small business owners; Subchapter V may indeed open those hands wider.
Bankruptcy Lawyer in Charlotte
Bryan W. Stone
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