By: The NBI Team
Tuesday, December 15, 2020
The SBRA: An Important Bankruptcy Option for Distressed Small Businesses
What is the SBRA?While Chapter 11 bankruptcy has long been an option for businesses to restructure their debts, it also comes with high costs and complex challenges.
The new law generally allows small business debtors with less than $2.7 million in debt to reorganize them without the cost burden imposed by traditional Chapter 11, as long as 50% or more of the debt arose from business activities. As in Chapter 11, a small business debtor may continue business operations in a case brought under the SBRA.
Additionally, eligible small business debtors may be entitled to amend petitions previously filed to proceed under Subchapter 5, even if their case has been pending several months.
What New Provisions Does the SBRA Include?The new Subchapter 5 provides relief to small businesses that may not be possible for them to attain through other bankruptcy types.
A small business debtor who chooses to proceed with bankruptcy under Subchapter 5 of Chapter 11 must file a plan within 90 days of the date they file the petition. This requirement differs from that in a traditional Chapter 11, in which the plan must be filed within 120 days. Under the SBRA, only the debtor may file the reorganization plan.
While a debtor does not need to file a separate disclosure statement with the plan, they must still include some of the information contained in it, such as:
- A history of the business’s operations
- An analysis of liquidation
- A projection concerning the debtor’s ability to make payments under the plan
The SBRA offers small business debtors significantly less restrictive requirements for plan confirmation and the elimination of the absolute priority rule. Additionally, administrative expense payments can be made over the term set forth by the plan, rather than on the date it becomes effective. The key features of the SBRA can significantly impact a small business debtor’s rights and remedies in bankruptcy.
Learn More About the SBRA and How it Can Help Small BusinessesWhile this post does not offer a comprehensive list of all the major changes, you can learn more about the details of the SBRA and get case strategies at NBI’s upcoming course, A Guide to Small Business Bankruptcies Under New Subchapter 5 (December 21, 2020). It will be available OnDemand shortly after it airs.
As the economic effects of COVID-19 worsen, many more small businesses may seek relief under the SBRA. Attorneys must have a comprehensive understanding of how it differs from a traditional Chapter 11 proceeding and the benefits it can offer their clients.
This blog post is for general informative purposes only and should not be construed as legal advice or a solicitation to provide legal services. You should consult with an attorney before you rely on this information. While we attempted to ensure accuracy, completeness and timeliness, we assume no responsibility for this post’s accuracy, completeness or timeliness.