Small Business Reorganization Act (SBRA)

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How the SBRA can make it work

The Small Business Reorganization Act makes it cheaper, faster, and less complex to have a successful Chapter 11 process for businesses with less than $7.5 million in total liabilities. It also provides significant leverage to the company in dealing with creditors to restructure its balance sheet. The key features are:

Reduced cost

• No creditors committee (the debtor needs to pay committee’s expenses in normal Chapter 11)
• Faster process means lower legal fees
• No fees to US Trustee’s office

Faster, less complex process

• Only the debtor can file a plan of reorganization
• Must be filed within 90 days, and can be much sooner
• No disclosure statement is required. A much simpler plan proposal is sufficient.

Significant leverage for debtor against unsecured creditors

• If creditors cannot agree, the court must approve a plan under which all of the debtor’s “projected disposable income” goes to the creditors for at least 3 years, but not more than 5 (at the court’s discretion). That is, income not necessary for the “continuation, preservation, or operation of the business”.
• After the time period, if payments have been made according to the Plan, the debtor receives a discharge and is free and clear of all debts subject to the Plan.
• This is potentially a powerful lever to get creditors to agree to consensual Plan.

The SBRA is new, only effective in February 2020. It is clear that Congress’ intention, as reflected in the Act, was to make Chapter 11 actually work for small businesses, allowing them to successfully reorganize as solvent, operating businesses.  

To discuss whether it makes sense for your business to take advantage of the SBRA, contact us.