Small Business

Alexandria, Va. — The American Bankruptcy Institute (ABI) Subchapter V Task Force today released its “Preliminary Report of ABI’s Subchapter V Task Force on Maintaining the $7,500,000 Debt Cap for Subchapter V Eligibility” with findings to support permanently maintaining the eligibility limit of $7.5 million in aggregate noncontingent, liquidated debt for small businesses looking to reorganize under subchapter V. The Task Force’s Preliminary Report, which was also transmitted today to key members of Congress, is the result of nine months of public hearings, roundtable discussions and an industry survey inviting comment on Subchapter V.

“As the Preliminary Report notes, subchapter V is imperative for this category of debtors that cannot reorganize in a regular chapter 11 case and would otherwise liquidate and close, thus harming owners, employees, and creditors,” ABI President Soneet Kapila of Kapila Mukamal (Ft. 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. “Had the $7.5 million debt cap not been in place, given the cost of restructuring alternatives, these businesses would likely have been extinguished, thereby leading to the loss of jobs and harm to the economy.”

The Small Business Reorganization Act of 2019 (SBRA) went into effect on February 19, 2020, with a debt eligibility limit of $2,725,625 for struggling small businesses looking for a more economical and efficient way to reorganize their debts within chapter 11 of the Bankruptcy Code. In March 2020, the eligibility limit was expanded to $7.5 million through the CARES Act of 2020, and it received subsequent legislative extensions that are scheduled to sunset in June 2024.

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 cap.

“Most subchapter V debtors have filed bankruptcy while the $7.5 million debt cap has been in place,” Kapila noted in the letter. “Reverting to the lower debt cap would make reorganization inaccessible to many smaller businesses.”

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/.

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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.