Small Business

Alexandria, Va. — The American Bankruptcy Institute’s (ABI) Subchapter V Task Force today transmitted a letter to key members of Congress providing further supplemental input regarding its “Preliminary Report of ABI’s Subchapter V Task Force on Maintaining the $7,500,000 Debt Cap for Subchapter V Eligibility” (“Preliminary Report”), released in December 2023.

“Since issuing its Preliminary Report, the Task Force was asked to consider whether, based on its recent in-depth study of Subchapter V cases, a change to address affiliate and insider debt for debtor eligibility is advisable,” ABI President Soneet Kapila of KapilaMukamal (Fort Lauderdale, Fla.) writes in the letter to Senate Judiciary Chairman Richard Durbin (D-Ill.); Ranking Member Sen. Lindsay Graham (R-S.C.); Rep. Thomas Massie (R-Ky.), chair of the House Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Antitrust; and Rep. Luis Correa (D-Calif.), the ranking member of the subcommittee.

The letter highlighted a few of Task Force’s findings to support the conclusion that no changes are needed to the eligibility standards for Subchapter V:

•           Requiring smaller businesses to include affiliate or insider debt in the Subchapter V eligibility standard would discourage smaller business owners, shareholders or related entities from extending loans or credit to the debtor business, which is a form of funding frequently relied upon by smaller businesses.

•           The Task Force did not receive or uncover any evidence that affiliate or insider debt was allowing larger or more complex businesses to file for Subchapter V bankruptcy or otherwise abuse the system.

•           The Task Force’s study demonstrates that Subchapter V is working as intended by Congress, helping smaller businesses reorganize their businesses and make payments to their creditors.

“Based on the foregoing, the Task Force strongly recommends no change to the eligibility standards under Subchapter V at this time,” Kapila writes.

The Task Force’s Preliminary Report found that nearly 30% of all chapter 11 bankruptcy cases filed since the enactment of the SBRA have been Subchapter V cases. Significantly, the Task Force found that more than 25% of these Subchapter V debtors would have been ineligible for Subchapter V relief under the lower debt cap.

The Task Force will be issuing its Final Report on April 19 at ABI’s 2024 Annual Spring Meeting in Washington, D.C. To access the Preliminary Report and find out more about the work of ABI’s Subchapter V Task Force, please visit https://subvtaskforce.abi.org/.

###

ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 10,000 attorneys, financial advisors, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org.