News & Notes from IACC


House Approves Small Business Reorganization Act

Restructuring tools for small businesses available in new subchapter of bankruptcy code.

The U.S. House of Representatives recently passed the Small Business Reorganization Act of 2019 (H.R. 3311), allowing small businesses to employ the tools of Chapter 11 to successfully reorganize, according to a news release from the American Bankruptcy Institute (ABI.)

H.R. 3311, introduced by U.S. Reps. Ben Cline, R-Va., David Cicilline, D-R.I., Doug Collins, R-Ga., and Steve Cohen, D-Tenn., is inspired by the work of the National Bankruptcy Conference and ABI’s Commission to Study the Reform of Chapter 11, according to the news release.

“Chapter 11 doesn’t work for small and medium-sized businesses because the Bankruptcy Code (a) places unrealistic and artificial deadlines on [them], which do not give these companies an opportunity to restructure; (b) imposes substantial and costly disclosure and reporting requirements on these companies; (c) does not provide any tools that can help small businesses … create and implement an effective reorganization plan; and (d) makes it difficult for a small-business owner to maintain an ownership interest in the business under the current Chapter 11,” ABI Commission Co-Chair Bob Keach (Bernstein Shur; Portland, Maine) testified before a House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law hearing June 25, 2019, the ABI reports.

The SBRA would add a new subchapter V to Chapter 11 to address these problems, leading to more successful restructurings, reduced liquidations, saved jobs and increased recoveries to creditors, according to the ABI. It adopts the current definition of a “small business debtor” as a person in commercial or business activity with an aggregate or noncontingent liquidated secured and unsecured debts as of its bankruptcy filing date of not more than $2,725,625

“The Small Business Reorganization Act is a breakthrough for Main Street businesses to finally have the restructuring tools now available only to large companies,” ABI Executive Director Samuel Gerdano said in the news release. “With proper planning and execution, financially troubled small businesses can emerge from bankruptcy within months following a court-approved plan of reorganization. ABI applauds the House action.”

A bipartisan companion bill is pending in the Senate.

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