The Small Business Reorganization Act of 2019 (SBRA) became effective on the eve of the economic free fall stemming from the COVID-19 pandemic. Longleaf Law Partner’s bankruptcy law expert, Cindy G. Oliver, explains the new law in our 13-part series, Bankruptcy Buzz.
Part 5 of 13:
There are no creditors’ committees in a Subchapter V small business Chapter 11 case unless the bankruptcy court deems them warranted. In a traditional Chapter 11 bankruptcy case, an unsecured creditors’ committee typically consists of the holders of the largest unsecured claims. The creditors’ committee retains its own attorney, who is then paid by the debtor. Eliminating the bankruptcy estate’s cost of the attorney for the creditors’ committee helps to make a Subchapter V small business bankruptcy cheaper than a traditional Chapter 11 bankruptcy case.
Additionally, the demands of a creditors’ committee can prolong and complicate the process of formulating and confirming a consensual Chapter 11 plan, which is contrary to the intent of the more streamlined, efficient and cost-effective Subchapter V small business bankruptcy case. While creditors’ committees can play a very important role in traditional Chapter 11 cases, Congress recognized the upside of eliminating the creditors’ committee in small business cases when it adopted the Small Business Reorganization Act, which became effective in February 2020. Besides, the court has the power to appoint a committee in a Subchapter V small business case if one is warranted.
The information provided in this article does not, and is not intended to, constitute legal advice. No action should be taken in any particular circumstance or fact situation with reliance upon the information contained in this article without obtaining the advice of an attorney.