The streamlined and cost-effective processes within the Small Business Reorganization Act will be a key part of helping struggling small businesses reorganize amidst the COVID-19 economic crisis, according to a Bloomberg Businessweek analysis. Taking effect just two months ago, the new provisions had applied only to businesses or proprietors with less than $2.7 million in debt. But then, in late March, Congress temporarily upped this debt cap to $7.5 million as part of the $2 trillion CARES Act package. "The goal of the Subchapter V is to let the small business owner remain in possession of the assets," says Deborah Williamson, who heads the bankruptcy practice at the law firm Dykema. A small-business debtor must choose, or "elect," a Subchapter V proceeding. Otherwise the case will fall under the normal rules — and, says Williamson, there's no reason to do that unless you're determined to sell the company "and avoid working for the creditors." That's especially true now, because the $7.5 million debt ceiling in the coronavirus relief law applies only to Subchapter V cases. However, she says, companies that are already reorganizing through chapter 11 and that qualify for Subchapter V treatment can switch to it. The higher cap is much closer to the $10 million debt limit recommended by ABI's Commission to Study the Reform Chapter 11 originally sought. As the law currently stands, the limit will fall back to the parsimonious $2.7 million cap after one year, on March 27, 2021.
