The new Small Business Reorganization Act is effective as of February 19, 2020. The intent of the new law is to create a streamlined, cost-efficient path for small businesses to successfully restructure. As of the Effective Date, the debt limit for a small business case is $2,725,625, which limits who may qualify. The may limit eligibility and effectiveness primarily to parties engaged in litigation that needs to end, but the hope is that much like a Family Farmer Bankruptcy the debt limit will increase to $10,000,000.00 which encompasses 90% of the Chapter 11 cases filed in Arizona.
Under the new process, the benefits may include:
- No Committee of Unsecured Creditors which reduces administrative costs down.
- No requirement for Court-approval of a Disclosure Statement which reduces delay of the proceedings.
- No need for a class of unimpaired creditors, a legal mechanism that never served its intended purpose.
- No need for new value. Debtors often had to find significant new investment to reorganize and that can now be reduced.
- The ability to restructure mortgages where the proceeds were used in the business.
- Only a debtor may file a Plan of Reorganization. This change reduces some of the uncertainty of a bankruptcy filing.
To reorganize, the business must pay its disposable income to creditors for at least three years. However, disposable income is a term of art that has only been applied to businesses in limited circumstances. This is one of many areas of the new law that creates uncertainty and potentially opportunity for a debtor in bankruptcy. If your business is engaged in litigation that is crippling the business or has a bank that is no longer working with you, contact the Business Restructuring Attorneys at Mesch Clark Rothschild at (520) 624-8886 to discuss available options, including the new laws implemented by the Small Business Reorganization Act.
