Posts

FactorLaw's Summary and Analysis of the Small Business Reorganization Act

1. THE SUBCHAPTER 5 ELECTION. Chapter 11 now contains a “Subchapter 5” which applies only to “small business debtors” that make a so-called “Subchapter 5” election. See 11 U.S.C. §§ 1181-1195. Absent such an election, the small business case will be administered under the existing small business provisions of Chapter 11. Although the 2005 BAPCPA amendments to the Bankruptcy Code streamlined the Chapter 11 process for small business debtors (i.e., a plan has to be confirmed within 300 days), the process was still viewed as too onerous and expensive for those that qualified. Subchapter 5 provides small business debtors the option of using a new law designed to make the chapter 11 process faster and cheaper, including the process for selling a distressed business under a plan. It brings to Small Business Cases under Chapter 11 features previously available only in Chapter 12 or 13 cases. SBRA also reshuffles the leverage between debtors and creditors and tries to promote consensual outcomes. 2. THE INTERIM BANKRUPTCY RULES. Interim amendments to the Federal Rules of Bankruptcy Procedure also have been promulgated to guide cases where the debtor has made the Subchapter 5 election. The interim bankruptcy rules, including Interim Bankruptcy Rule 1020, implement the SBRA. New forms also may be forthcoming. 3. MAKING THE ELECTION. The Subchapter 5 election must be made on the petition for relief for voluntary cases or within 14 days after the order for relief in involuntary cases. Although the Subchapter 5 election is made when the bankruptcy petition is filed, Rule 1020(b) suggests the petition can be amended to make the Subchapter 5 designation after the filing. Doing so may not be advisable, however, because a delayed election may cause key deadlines to be missed. Another potential issue involves the retroactive application of the SBRA to cases pending before its effective date. 4. ELIGIBILITY CRITERIA. Subchapter 5 cases are available to any entity or individual engaged in commercial or business activity with aggregate and liquidated debts of not more than $2,725,625, of which more than 50% is commercial or business debt. The new law helps clarify eligibility. More than 50% of the debt has to be commercial or business. In view of SBRA’s changes to the absolute priority rule, inter alia, individual chapter 11 debtors with primarily business debts should consider whether they can make the Subchapter 5 election. The eligibility requirements to be a small business debtor have been modified insofar as more than 50% of the debt now must be from the commercial or business activities of the debtor and the exclusion for single asset real estate debtors has been clarified. 5. CRAMDOWN VS. CONSENSUAL PLANS: SBRA differentiates between confirmation under §1191(a) and 1191(b). Section 1191(a) deals with a plan that is accepted by all classes of claims – i.e., a consensual plan. Section 1191(b) addresses a “cramdown plan.” As discussed herein, certain SBRA provisions apply, or do not apply, depending upon whether the plan is consensual or not. Existing law differentiates between a consensual plan and a cramdown. However, the requirements to confirm a cramdown plan are essentially the same as the requirements for a consensual plan, other than the absolute priority rule. The SBRA eases the burdens for confirming a cramdown plan and thus provides debtors with more leverage to negotiate concessions from creditors. Conversely, debtors fare better under SBRA if they are able to negotiate a consensual plan. As discussed herein, the SBRA tries to foster consensual plans. 6. NO ABSOLUTE PRIORITY RULE. Like in Chapter 13, the absolute priority rule does not apply with respect to classes of unsecured creditors when the debtor makes the Subchapter 5 election. Thus, the owners of the business can retain their ownership interest even if unsecured claims are not paid in full. Similarly, an individual debtor can retain property even if they do not pay unsecured creditors in full. Secured creditors, on the other hand, still must be paid in accordance with §1129, but like before, their claim can be bifurcated into a secured and unsecured portion. Also, secured creditors can still make the §1111(b) election. Prior to SBRA, the owners of a small business debtor could not retain their ownership interests unless all creditors, including unsecured creditors, were paid in full. Similarly, an individual that qualified as a small business debtor could not retain any property absent payment in full of all creditors. Paying creditors in full prior to allocating value to equity was codified in the “fair and equitable” test of §1129(b), which also codified the absolute priority rule. The absolute priority rule is a long-standing requirement of chapter 11 and in the past could be a strong impediment to the confirmation of a plan. Under SBRA, to be “fair and equitable” as to unsecured creditors, the small business debtor n… Read More
Read More

Mack Industries - Agenda for July 15 Omnibus Hearing

We just posted the agenda for the Mack Industries omnibus hearing taking place on July 15, 2021. Visit our Mack Industries page for a copy. Read More
Read More
Categories: Uncategorized

Mack Industries - Omnibus Hearing Agenda for May 20, 2021

We just posted the agenda for Mack Industries Omnibus Hearing on May 20, 2021. Visit our Mack Industries page for a copy. Read More
Read More
Categories: Uncategorized

Mack Industries - Agenda for April 15 Omnibus Hearing

We just posted the agenda for the April 15, 2021, omnibus hearing in the Mack Industries case. You can get a copy by visiting our Mack Industries page. Read More
Read More
Categories: Uncategorized

Mack Industries - Agenda for March 18, 2021 Omnibus Hearing

We just posted the agenda for the March 18 Omnibus Hearing in the Mack Industries case. Visit https://wfactorlaw.com/mack-industries-filing/ for a copy. Read More
Read More
Categories: Uncategorized

Mack Industries - Agenda for Feb. 18, 2021 Omnibus Hearing

We just posted the agenda for the February 18 Omnibus Hearing in the Mack Industries case. Visit https://wfactorlaw.com/mack-industries-filing/ for a copy. Read More
Read More
Categories: Uncategorized

Mack Industries - Jan. 21 Omnibus Hearing Agenda Posted

We just posted the agenda for the January 21 Omnibus Hearing in the Mack Industries case. Visit https://wfactorlaw.com/mack-industries-filing/ for a copy. Read More
Read More
Categories: Uncategorized

FactorLaw is proud to announce that our colleague, Elizabeth Peterson, was awarded the David S. Yen Bankruptcy Help Desk Volunteer of the Year for the Northern District of Illinois

Legal Aid Chicago’s nomination of Elizabeth describes her significant contributions to the Help Desk at the Chicago Bankruptcy Court, noting that “Liz has been an active volunteer since January of 2019. Liz has truly shown her dedication to the Bankruptcy Help Desk throughout this past year. Liz is consistent and reliable, and this did not change when the Desk was forced to go remote. Indeed, once COVID hit and we were forced to restructure the Desk, Liz embraced the changes and started serving an even higher number of clients. Liz is often the first to sign up every month, and she consistently steps up to support the Desk when we need additional volunteers. She is thorough and skilled when assisting clients. In sum, Liz has been an invaluable asset to the Desk during these very difficult times.” Read More
Read More

Mack Industries - Agenda for December 17 Hearing

We’ve posted the agenda for the upcoming Omnibus Hearing on December 17, 2020, in the Mack Industries case. Please visit our Mack Industries page for a copy: https://wfactorlaw.com/test/mack-industries-filing/. Read More
Read More
Categories: Uncategorized

Mack Industries - Agenda for November 19, 2020, Omnibus Hearing

We’ve posted the agenda for the upcoming Omnibus Hearing on November 19, 2020, in the Mack Industries case. Please visit our Mack Industries page for a copy: https://wfactorlaw.com/test/mack-industries-filing/. Read More
Read More
Categories: Uncategorized

Mack Industries - Agenda for October 15, 2020, Omnibus Hearing

We just posted the agenda for the Mack Industries October 15, 2020, omnibus hearing. Visit our Mack Industries page for more information. Read More
Read More
Categories: Uncategorized

For More Information