Chip Ford and Ashley Edwards wrote an article in the Journal of Corporate Renewal on what turnaround professionals need to know about a new bankruptcy option.
"Federal legislation in response to the coronavirus pandemic created a limited window for more businesses to qualify for what is intended to be a faster, less costly, and simpler route through bankruptcy," they wrote. "This route exists through the Small Business Reorganization Act, which created a new subchapter of the Bankruptcy Code, Subchapter V, effective February 19 of last year. Subchapter V originally applied only to small businesses with aggregate secured and unsecured debts of less than $2.7 million. However, the CARES Act temporarily increased the aggregate debt level for an entity eligible to participate in those streamlined bankruptcies to $7.5 million," and Congress recently extended the increased debt limit for another year.
"Struggling small businesses, opportunistic buyers, and their advisers should all familiarize themselves with the advantages of Subchapter V for companies that qualify," they continued. "Simply put, the new law accelerates the process and reduces the costs of reorganization for small businesses. On the other side of the table, buyers may find that Subchapter V’s streamlined plan confirmation process offers greater speed, efficiency, and certainty than the traditional but often cumbersome stalking horse/auction process under Section 363 of the Bankruptcy Code."
"However, because of how new Subchapter V is and the immense uncertainty the pandemic has created, questions remain about how turnaround professionals and others in this space can best use it."
You can read their full analysis here: What Turnaround Professionals Need to Know About Subchapter V.
The Journal of Corporate Renewal is the official magazine of the Turnaround Management Association (TMA), which has almost 10,000 members in 54 chapters worldwide.