In a much needed and welcomed bipartisan effort, Sen. Chuck Grassley (R-Iowa) and Sen. Sheldon Whitehouse (D-R.I.) introduced a bill last week that, if approved, would make bankruptcy a more attractive and realistic option for small businesses in financial distress. Small business debtors are companies with less than $2.5 million of debt. The title of the bill is the Small Business Reorganization Act of 2018 and, if enacted, would create a new subchapter of title 11 of the United States Code (subchapter V, immediately following subchapter IV governing railroad reorganizations). The proposed legislation is designed to make small business bankruptcies quicker and less expensive.
So how does the proposed bill make Chapter 11 less expensive and more attractive to small businesses? The bill shortens the time to file a plan to 90 days (as opposed to the 120 days provided for under §1121 of the Bankruptcy Code). Additionally, the bill eliminates the requirements of filing a disclosure statement and solicitation of votes of creditors. The bill truncates this two-step process by requiring only that the small business debtor propose and confirm a plan. For example, under the proposed bill, a small business debtor would be required to file a plan within 90 days (subject to an extension based on circumstances for which the debtor should not “justly be accountable” or, in other words, based on circumstances beyond the debtor’s control).
