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Congress Passes New Small Business Reorganization Act

The new Small Business Reorganization Act (“SBRA”) came into effect on February 19, 2020.  It is also referred to as Subchapter V of Chapter 11.

The SBRA was passed with the goal of providing troubled small businesses the opportunity to reorganize more quickly and efficiently while allowing creditors to get paid sooner.

One important component of the SBRA is the appointment of a Subchapter V Trustee to assist in managing the reorganization process.  In New Mexico, there are three panel Subchapter V Trustees who all have significant experience in business reorganization.  The Trustee will be randomly selected by the courts.

Congress also made confirming an SBRA Chapter 11 Plan much easier than a traditional Chapter 11 Plan.  For instance, the SBRA permits small businesses to get plans confirmed over the opposition of certain creditors when it could not be possible before; in other words, there is the broader ability for small businesses in Chapter 11 to obtain a “cram down” plan where certain debts are rewritten over the objection of certain creditors.

Second, the SBRA allows for business owners to retain ownership of their company even when creditors are not being paid in full. In bankruptcy terminology, the SBRA dispenses with the so-called “absolute priority rule.”

A business that is taking advantage of the SBRA must propose a plan within 90 days. Other requirements ensuring transparency and accountability remain—such as the filing of detailed monthly operating reports.

The goal of the SBRA is for the Subchapter V Trustee to negotiate a consensual plan, meaning a reorganization that is agreed to by all parties.  If no consensual plan is reached, then the small business debtor’s discharge is delayed and the Trustee remains until the plan is completed.

The Small Business Reorganization Act is one of the most important revisions of the Bankruptcy Code in decades. You should have a specialist assist you with understanding and working through SBRA filing.

As of the date of this writing, February of 2021, Don Harris is the only attorney in the state of New Mexico who is nationally certified by the American Board of Certification for business bankruptcy law.