Sub-Chapter V of Chapter 11 of the United States Bankruptcy Code was signed into law in August 2019 and took effect in February 2020. The intent of the change to the Bankruptcy Code was to provide a more streamlined, less expensive alternative to a Small Business Debtor that provides small businesses with a much better opportunity to actually confirm a plan of reorganization.

STREAMLINED CHAPTER 11

REQUIREMENT FOR DISCLOSURE STATEMENT IS REMOVED

Sub-Chapter V does not require that the Debtor prepare and file a Disclosure Statement with the Court. In a Chapter 11, the Disclosure Statement is a detailed document, the purpose of which is to provide the Debtor’s creditors with sufficient information about the Debtor’s business so as to allow those creditors to vote informatively for or against the Debtor’s proposed Plan of Reorganization. The time required to prepare a Disclosure Statement, that would meet the requirements of the Bankruptcy Code and be approved by the Court, is substantial.

No longer having to file a disclosure statement, the small business debtor in a Sub-Chapter V will save on the expense of having to pay professionals, its attorney and accountant, to prepare this document. This could result in thousands of dollars of savings on fees and expenses for the small business debtor.

Plan must be filed within 90 days of petition filing

The small business debtor, in a Sub-Chapter V, must file a Plan within 90 days of its petition filing, unless that deadline is extended by the Court due to circumstances beyond the control of the debtor. The Plan must include certain information typically found in a disclosure statement. For instance, it must include history of the business operations, a liquidation analysis, and projections of ability of the debtor to make payments under the plan.

In a chapter 11 small business debtor case, the Debtor has exclusive ability to file its Plan within the first 180 days of the filing of the petition. Much of that time is spent negotiating with creditors in an attempt to reach an agreement as to their treatment under the Plan. Thus, by expediting this process and removing the need to solicit approval of creditors to confirm a Plan, the confirmation process under Sub-Chapter V should be much more cost-efficient for the small business debtor.

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