Small Business Reorganization Act

On August 23, 2019, President Trump signed into law the Small Business Reorganization Act (“Act”), which is intended to make bankruptcy reorganizations a faster, more efficient, and more affordable debt-management option for small businesses. The new law, which becomes effective on February 19, 2020, will apply to small businesses (including individuals) with up to $2,725,625.00 of non-contingent liquidated and unliquidated debt, of which at least 50% comes from commercial or business activities. Highlights of the new law include:

• Appointment of a standing Trustee, having functions similarly to a Chapter 13 Trustee;
• Only the Debtor can propose a reorganization plan, which must be filed within 90 days of the petition date;
• A separate disclosure statement is not required;
• The Debtor is not required to solicit votes to confirm its plan;
• The plan may allow for modification of a Debtor’s non-purchase money mortgage of residential property;
• The absolute priority rule will not apply;
• Administrative expenses do not need to be paid at confirmation, and instead can be paid over the life of the plan;
• Plan terms of 3-5 years.

The Act also changes the preference laws for all bankruptcies. Before a preference claim is filed, the Debtor-in-Possession / Trustee must conduct reasonable due diligence into the known affirmative defenses which may be available to the defendant. Furthermore, in order to file a preference complaint outside the preference defendant’s home district, the amount of the claim must be $25,000.00 or more (up from the current $13,600.00).

For questions regarding a business bankruptcy contact the author Michael P. O'Hara at (260) 423-8838.