SBRA simplifies the bankruptcy process by increasing efficiency, lowering costs, and easing the plan confirmation process. On balance, SBRA helps if a small business is at a cross roads as to whether the business continues, or has to close one’s doors and liquidate one’s assets.

SBRA was designed to address the concerns that Chapter 11 had a high ratio of loss of ownership, a high cost of filing, protracted schedules, exhaustive procedural and reporting burdens, creditor committee costs, and the tactical fighting that took place driven by confirmation of the Plan pursuant Section 11229 (a) (10).

Under a Chapter 11 filers often had to convert their Chapter 11 Petition to a Chapter 7 Liquidation Plan. The SBRA statute is designed for the small business debtor who must be a person or entity engaged in commercial or business activity with aggregate non-contingent liquidated secured and unsecured debts of $2,725,625 or less, excluding debt owed to affiliates or insiders. However, single asset real estate entities are generally excluded from SBRA. Note that in October 2020 the Cares Act modified the SBRA Subchapter V debt limit to be $7.5 million, but that higher debt limit is scheduled to expire in March of 2020.

Subchapter V has no creditor committee, and thus creditor committee hold ups, which can often impede a Chapter 11 Plan. Also, there is no absolute priority rule in Subchapter V. Moreover, other than the initial filing fee, fees are essentially eliminated, making the SBRA process much less expensive to the petitioner than a Chapter 11.

Under Subchapter V, if the creditors will not agree on the petitioner’s proposed Plan, an application can be made to the Bankruptcy Court Judge to order that the Plan be approved (referred to as a “cram down.”) The success of these proposed Plans need only be more attractive to the unsecured creditors than would a conversion to a Chapter 7 liquidation Plan, often a low threshold.
To evaluate your rights under Subchapter V, the Law Office of Malachowski and Associates will need to review your balance sheet, statement of operations, cash flow statement, income tax return and other documents as needed.

The SBRA(Small Business Reorganization Act) Has a Separate Disclosure Exemption. Unless the court for cause orders otherwise, section 1125 does not apply to a case under Subchapter V. See § 1181(b). The SBRA simply requires that “[a] plan filed under this subchapter—(1) shall include—(A) a brief history of the business operations of the debtor; (B) a liquidation analysis; and (C) projections with respect to the ability of the debtor to make payments under the proposed plan of reorganization.” See § 1190. The Committee Note to Official Form 425, the Plan of Reorganization for Small Business Under Chapter 11, states that “there will generally not be a disclosure statement in subchapter V cases…”