Businesses experiencing financial difficulties have long been permitted to seek the protection of Chapter 11 of the Bankruptcy Code to attempt to reorganize their debt. Unfortunately, as many of those businesses find out, a Chapter 11 restructuring normally proves to be a difficult and expensive process. According to a recent study, between 2008 and 2015 only approximately 27% of the small businesses that entered bankruptcy successfully got the court to approve their reorganization plan. Put another way, 75% of small business bankruptcies fail before even getting a plan approved.
In an effort to try to make small business bankruptcies more user-friendly, Congress recently passed the Small Business Reorganization Act of 2019, which will take effect on February 20, 2020. This new law will apply to companies and individuals (whose debts primarily arise from commercial or business purposes) with no more than $2,725,625.00 in total debt.
While the law has not yet gone into effect and its practical benefit is still unknown, the law does appear to make it easier, quicker and cheaper for a small business to reorganize under Chapter 11. Among the benefits of the law are more powerful tools to allow a small business to get a plan approved in the face of creditor objections. In certain circumstances a plan can be approved even if the creditors are not in favor and vote against it. Unlike in the more typical Chapter 11 case, there is no input from a creditors’ committee that might interfere with the plan getting approved. In addition, the new law does away with what is known as the absolute priority rule which under current law makes it very difficult for small business owners to retain their ownership interest in their company in a reorganization.
Under the new small business bankruptcy law, a bankruptcy trustee will be appointed in every case. But their duties will be limited. The primary role of the trustee will be to help mediate or facilitate a plan that is agreeable to both the small business and the creditors, and, in some cases, make the payments required under the plan.
Contact Levitt & Slafkes for Information on the New Small Business Bankruptcy Rules
The lawyers at the law firm of Levitt & Slafkes, P.C. have been representing individuals and small businesses in the bankruptcy courts for more than thirty years. We look forward to using the new small business bankruptcy provisions to help our small business clients successfully restructure.
Call us at 973-323-2953, or contact us online to schedule a free consultation.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.