The American Bankruptcy Institute created a Subchapter V task force to study and evaluate small business reorganizations under Subchapter V of Chapter 11 of the bankruptcy code, which went into effect on Feb. 19, 2020. The nine-member expert panel will examine case law and statistical data under Subchapter V since its enactment through the present. This study will consider, among other things, how the subchapter is working in practice and whether it is achieving certain underlying objectives, such as assisting debtors and creditors in resolving the reorganization cases of small- and medium-sized businesses more effectively and efficiently, and what improvements it might need. The task force intends to solicit input about Subchapter V from the public via hearings and its forthcoming website, culminating in a final report to be delivered in early April 2024.
The concept of Subchapter V started as one of the centerpiece recommendations of the ABI’s Commission to Study the Reform of Chapter 11, which published its final report and recommendations in 2014. It was formalized in the code by the enactment of the Small Business Reorganization Act of 2019 (SBRA), which went into effect on Feb. 19, 2020, to provide Main Street business debtors with a more streamlined path for restructuring their debts. The eligibility limit for small businesses looking to elect to file under the SBRA’s Subchapter V was originally $2,725,625 of debt, but the threshold was increased to $7.5 million with the enactment of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) on March 27, 2020, in response to the economic distress caused by the COVID-19 pandemic. The increased debt limit received two subsequent extensions that were signed into law, but the last extension is due to sunset on June 21, 2024.
In the first three years that subchapter V was available (through Feb. 18, 2023), there have been 4,571 Subchapter V cases filed, according to an initial analysis by the task force. Small business and Subchapter V cases have comprised nearly one-third of Chapter 11 filings during this period (5,689 out of 17,493). Since the debt-eligibility limits were increased by the CARES Act in March 2020, about 30% of the Subchapter V cases filed have been over the original debt limit. Based on the cases completed so far, the higher-liability Subchapter V cases are more likely to result in confirmation or conversion (as opposed to dismissal) than the lower-liability cases.
The task force is co-chaired by Hon. Michelle M. Harner of the U.S. Bankruptcy Court for the District of Maryland (Baltimore) and Megan W. Murray of Underwood Murray (Tampa, FL). Other members of the task force include Hon. Paul W. Bonapfel of the U.S. Bankruptcy Court for the Northern District of Georgia (Atlanta), past ABI president Robert J. Keach of Bernstein Shur (Portland, ME), Jolene E. Wee of JW Infinity Consulting (New York), Donald L. Swanson of Koley Jessen (Omaha, NE) and Elizabeth M. Lally of Spencer Fane (Omaha, NE). Professor Alexandra Everhart Sickler of the University of North Dakota School of Law (Grand Forks, ND) will serve as the official reporter for the task force. In addition, Daniel J. Casamatta of the Office of the U.S. Trustee (Kansas City, MO) will be the U.S. Trustee ex officio member.
