Donald Clarke Pens Article Entitled "An Atypical Small Business Subchapter V Matter" for New Jersey Law Journal
March 1, 2022 | By: Donald W. Clarke, Esq.
The Small Business Reorganization Act of 2019 (SBRA) represents a significant change to the Chapter 11 process. The most notorious of those modifications includes eliminating the U.S. Trustee’s routine of appointing a creditors’ committee unless the court orders otherwise “for cause”; providing for the appointment of a Subchapter V trustee; and eliminating quarterly U.S. Trustee fees. The SBRA was enacted to provide the colloquial “Main Street” debtors with a more manageable and cost-effective option to the restructuring of their debts or liquidation of their assets than the standard Chapter 11 (the “Standard 11”). There are differing opinions on the availability of Subchapter V for a liquidating debtor. However, it is worth noting that, in New Jersey, the Bankruptcy Court’s mandatory form for a Subchapter V plan is titled, “Chapter 11 Subchapter V Small Business Debtor’s Plan of Reorganization [or Liquidation].”
A prevalent assumption among practitioners, likely based on the time- and cost-saving focus of many of the changes, is that the purpose of the SBRA is to set the stage for debtors with smaller operations. However, the SBRA requirement that “contingent liabilities” not be included in the threshold calculation of whether a debtor qualifies for a Subchapter V Chapter 11 (“Subchapter V”) opens the door for atypical examples of “small business” reorganizations or liquidations.
Case in point, a health plan trust with, historically, nearly a quarter of a billion dollars in total annual premium collection from its members. It is worth noting that the potential existed for the health care trust at issue here to elect Subchapter V notwithstanding the temporary increase of maximum allowed noncontingent liquidated secured and unsecured debts to $7.5 million by the Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020 (the “CARES Act”), which temporary increase was extended to March of 2022 with the enactment of the COVID-19 Bankruptcy Relief Extension Act on March 27, 2021 (the “CARES Act Extension”).
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