Newly Enacted Small Business Bankruptcy Provisions

MM
McLane Middleton, Professional Association

Contributor

Founded in 1919, McLane Middleton, Professional Association has been committed to serving their clients, community and colleagues for over 100 years.  They are one of New England’s premier full-service law firms with offices in Woburn and Boston, Massachusetts and Manchester, Concord and Portsmouth, New Hampshire. 
We've received several questions about the newly enacted small business bankruptcy provisions. Below are a few of the frequently asked questions that businesses are asking.
United States Insolvency/Bankruptcy/Re-Structuring

We've received several questions about the newly enacted small business bankruptcy provisions. Below are a few of the frequently asked questions that businesses are asking.

Q: I'm a small business owner in New Hampshire who has been hit hard by the coronavirus pandemic. What can I do to ease burdens on my business in the near term to help get through this period?

A: In many cases lenders, trade creditors and landlords will negotiate concessions or terms if you can demonstrate the business's underlying long-term strength.

Q: Is reorganization in bankruptcy an option?

A: Many considerations go into determining whether a business can successfully reorganize, but new Subchapter V of Chapter 11 created by the Small Business Reorganization Act ("SBRA") makes the tools and protections of Chapter 11 reorganization more practical for small businesses.

Q: What is a "small business"?

A: Subchapter V is available to individuals or entities engaged in commercial or business activities (other than primarily owning/operating real property) who owe no more than $7.5 million.

Q: What are benefits of Chapter 11, Subchapter V for a small business?

A: More control over the process of developing a plan of reorganization makes it more likely that a plan can be efficiently proposed and approved.

Also, before the SBRA, a class of impaired creditors needed to vote in favor of the plan, which often led to the business being forced to agree to pay more than it could reasonably afford.

Q: Can I still own my business after a bankruptcy?

A: In a regular Chapter 11 case, the so-called "absolute priority rule" prevents an owner, absent the contribution of cash or other significant "new value," from retaining ownership over the objection of a creditor who would not be paid in full under the plan.

However, under Subchapter V, the absolute priority rule does not apply.

Q: Does my personal liability for business debt get discharged under Subchapter V?

A: If you personally guaranteed debt of your business entity, your personal liability will not be discharged as a result of the entity filing bankruptcy.

You should consult a professional advisor to assess your personal exposure and the effect of a bankruptcy filed by your business.

Published in the Union Leader (6/7/2020)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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