President Trump signed the Small Business Reorganization Act (SBRA) on August 23, effective 180 days from this date. SBRA aims to assist small business debtors to resolve their outstanding debts in more condensed and cost-efficient Chapter 11 proceedings. The SBRA attempts to streamline bankruptcy reorganizations for small business debtors with aggregate debts in an amount, not more than $2,725,625.

This bill passed the U.S. House on July 23, 2019, and the U.S. Senate on August 1, 2019. It added subchapter V, sections 1181-1195, to Chapter 11 of Title 11, otherwise known as the U.S. Bankruptcy Code.

Under the SBRA, a debtor that qualifies as a small business debtor will have the option to proceed under the new subchapter V, or instead, use the existing provisions of Chapter 11 applicable to small business debtors.

There are two significant features of the SBRA. First, it includes a new requirement appointing a standing trustee in all small business Chapter 11 cases.

The SBRA trustee oversees the case performing many of the same duties required of a Chapter 13 or Chapter 12 trustee throughout the plan of reorganization payment period, which, like a Chapter 13 case, lasts between three and five years.

The subchapter V trustee’s duties include:

    • accounting for the debtor’s property;
    • appearing at an initial status conference and all hearings;
    • facilitating the development of a consensual plan; and
    • supervising and controlling distributions of property and funds under the plan.

The SBRA also reassigns some of the debtor’s duties as debtor-in-possession under sections 704(a) and 1106(a) to the subchapter V trustee.

The SBRA provides relief to preference defendants in all bankruptcy cases, not only subchapter V small business bankruptcy cases. SBRA requires plaintiffs to consider a preference recipient’s potential affirmative defenses under § 547(c) of the Bankruptcy Code before filing a preference action (“based on reasonable due diligence in the circumstances and taking into account a party’s known or reasonably knowable affirmative defenses under sub-section (c)”).

SBRA also increases the “home court” dollar limitation contained in 28 U.S.C. § 1409(b) from $13,650 to $25,000. This increase applies to preference actions brought in the bankruptcy district where the defendant resides.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services, and advice for clients in all aspects of commercial compliance, business litigation, and transactional law. Call us at (818) 888-2220, send an email inquiry to [email protected] or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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