The Small Business Reorganization Act of 2019 (SBRA) went into effect on Feb. 19, 2020 and amended Chapter 11 of the Bankruptcy Code to include a new “subchapter V.” Subchapter V is intended to provide an alternative to liquidation for struggling small businesses where a more traditional (and expensive) Chapter 11 process is not a viable option. The SBRA is designed to alleviate costs typically associated with a Chapter 11 case and to achieve greater efficiencies in the overall process, thus allowing a small business debtor to rehabilitate its financial affairs while continuing to operate and preserve jobs.
By all accounts, the SBRA went into effect in the nick of time. With the U.S. economy experiencing the worst contraction in years due to widespread shutdowns associated with the COVID-19 pandemic, struggling small businesses need debt relief more than ever. While the SBRA is still relatively new, it has proven to be a useful tool for small businesses seeking to avoid liquidation. Not only have courts been lenient in approving retroactive petitions under subchapter V, but new filings also continue to increase, especially in those states most affected by the pandemic.
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