Know the Law: Newly Enacted Small Business Bankruptcy Provisions

Published: Union Leader (re-published in the Portsmouth Herald on 9/16/2020)
June 7, 2020
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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.

For more information on this topic, visit McLane Middleton’s Business Recovery Center at McLane.com.

Know the Law is a bi-weekly column sponsored by McLane Middleton, Professional Association.  We invite your questions of business law.  Questions and ideas for future columns should be emailed to [email protected].  Please note – Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.