Chapter 11 bankruptcy filings for small and closely held businesses has generally been a lengthy and sometimes costly process. Recent legislation has changed that proposition and given businesses another option to stop, take a breath and reorganize with the help of the courts.
The Small Business Reorganization Act (SBRA) provides for reduced costs, a more streamlined approval process and greater protections for the current ownership or management. Over the objection of creditors, eligible companies can present a plan of reorganization that is 'fair and equitable' rather than mechanical. And ownership can remain in place, better prepared for future success.
The Small Business Reorganization Act of 2019 (SBRA), known as Subchapter V (Public Law (PL) 116-54), presents a new opportunity for reorganizing small businesses under Chapter 11 of the U.S. Bankruptcy Code. This new law became effective February 20, 2020, and was promptly expanded as of March 27, 2020, when the eligibility debt cap was increased almost threefold, to $7.5 million, from about $2.7 million.