Changes to Chapter 11.

Since the passage of the Bankruptcy Code in 1979, it has been increasingly difficult for companies (and people) to successfully navigate through Chapter 11. The confirmation process, the costs involved and various regulatory requirements have made it difficult for Debtors to achieve a confirmed Chapter 11 Plan.

In August of 2019, a bi-partisan bill, the Small Business Reorganization Act of 2019 was signed into law by President Donald Trump. The SBRA is the most significant change in Chapter 11 since 1979 Code change. It is designed to decrease costs, increase efficiency and make Chapter 11 a more viable option for individuals and small businesses. Note: A small business is one that has debts less than $2,725,625.00. Hence, what Congress has referred to as a “small business” are not necessarily small in West Michigan.

The SBRA streamlines Chapter 11 requiring (i) much less paperwork; (ii) eliminating voting on a Chapter 11 Plan; and (iii) eliminating the so-called “absolute priority rule” which made it almost impossible for an individual Chapter 11 to be confirmed and providing for the appointment of a Trustee to assist in the administration of the Chapter 11. The Trustee does not have the broad powers of a Chapter 7 Trustee. Trustee’s duties are similar to those in Chapter 12 (farmers) and Chapter 13 (individuals).

From a more practical standpoint, the SBRA moves what have been for years large procedural obstacles that sometimes made Chapter 11, for a true, West Michigan small business, impractical. The new law is effective February 23, 2020. We look forward to a renewed interest in Chapter 11.

Categories: Reorganization

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