By increasing the debt ceiling for troubled companies seeking to reorganize from $2,725,625 to $7,500,000, the CARES Act makes it easier, faster—and potentially far less expensive—for more small businesses to reorganize under Chapter 11 of the Bankruptcy Code.
Prior to the enactment of the Small Business Reorganization Act (SBRA)—which only became effective in February of 2020—troubled small businesses often avoided filing for protection under the Bankruptcy Code, as it was typically believed to be far too difficult, expensive, and prolonged of a process. The SBRA was enacted to address some of these concerns by creating a more pragmatic means by which small businesses could reorganize. Unlike a traditional Chapter 11 case, a Subchapter V proceeding should be:
By increasing the debt ceiling for troubled companies under Subchapter V by almost $5 million the CARES Act will give more small businesses an opportunity to reorganize their affairs. The new debt ceiling established by the CARES Act will expire one year from the date of its enactment, absent an extension by Congress.
The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.
Author Corinne Brennan is a partner in the Bankruptcy & Restructuring Department at Klehr Harrison.