In this unprecedented time, businesses across all industries are reporting cash shortages, leading many, including their vulnerable employees, to fear they will fail. While businesses of all sizes will suffer from the economic downturn, small businesses may have a more difficult time surviving because there is less room to downsize and there are fewer assets available to negotiate with creditors, according to a Law360 commentary. Almost miraculously for small businesses, in August 2019, President Donald Trump signed into law a bipartisan bill introduced by Reps. Ben Cline, R-Va.; David Cicilline, D-R.I.; Doug Collins, R-Ga.; and Steve Cohen, D-Tenn. — the Small Business Reorganization Act, or SBRA, of 2019, also known as Subchapter V of chapter 11 of the Bankruptcy Code. The new law, which was supported by the American Bankruptcy Institute, became effective in February this year, just as U.S. small businesses started to feel the effects of the economic downturn resulting from the novel coronavirus pandemic. The SBRA addresses many of the issues that made it difficult over the last two decades for a small business to take advantage of the traditional provisions of chapter 11 of the Bankruptcy Code. Under the law, a small business is defined as having no more than about $2,725,625 in secured and unsecured debts. Bankruptcy practitioners should focus on whether their clients fall within this threshold. If so, they can immediately use the new law as leverage in prebankruptcy negotiations with creditors. If a bankruptcy filing is necessary, the Official Bankruptcy Petition Form has been amended to include a box that should be checked if a company elects to proceed under Subchapter V of chapter 11. In preparation for a possible filing, practitioners should gather financial statements from their clients. These will be needed to verify their client is a “small business” as defined by the Bankruptcy Code. Read the full commentary.
Get the information and analysis you need on SBRA by tapping in to ABI's "SBRA Resources" page.
