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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

March 29, 2021

The Small Business Reorganization Act and Subchapter V for Small Business Debtors

In August 2019, Congress passed the Small Business Reorganization Act (SBRA), which became effective February 19, 2020. The purpose of the SBRA was to make Chapter 11 reorganization faster and less expensive for small businesses. A new Subchapter V was added to Chapter 11 of the United States Bankruptcy Code and contained several changes beneficial to qualifying small businesses. These small businesses are allowed to restructure while avoiding some of the costs of a traditional Chapter 11 bankruptcy, such as by streamlining the confirmation process. Under the Bankruptcy Code, a small business debtor is an entity “engaged in commercial or business activities” that generated 50 percent or more of its debt from such activities, with total noncontingent, liquidated, secured, and unsecured debts of no more than $2,725,625.

In response to the global pandemic, in March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Under the CARES Act, Congress temporarily increased the debt limit for Subchapter V cases from $2,725,625 to $7,500,000. This debt limit increase made bankruptcy relief available to a wider group of small businesses. The increased debt limit under the CARES Act was slated to sunset on March 26, 2021, and return to $2,725,625 unless Congress acted before the expiry.

On March 26, 2021, Congress passed the COVID-19 Bankruptcy Relief Extension Act of 2021 (2021 Act) and President Biden signed the bill into law on March 27, 2021. The 2021 Act will extend the CARES Act bankruptcy provisions until March 27, 2022. Thus, under the 2021 Act, the higher debt limit of $7,500,000 will remain in place for another year to continue to help struggling small businesses.

Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area issues alerts on an ongoing basis to keep clients and friends up to date on important developments in the insolvency space. If you have any questions regarding the content of this alert, please contact Janice Grubin or Jeff Dove, co-chairs of the Restructuring, Bankruptcy & Creditors’ Rights Practice Area, at jgrubin@barclaydamon.com and jdove@barclaydamon.com, respectively; Robert Wonneberger, partner, at rwonneberger@barclaydamon.com; or Beth Ann Bivona, partner, at bbivona@barclaydamon.com.

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