The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) was enacted on March 27, providing a suite of protections and relief for everyday Americans and the economy at large. While most coverage has focused on other provisions that grant direct payments to American taxpayers, offer forgivable loans to businesses to cover payroll, and expand unemployment insurance benefits by $250 billion, the bill also included a significant expansion to the Small Business Reorganization Act of 2019 (the “SBRA”). The SBRA, which went into effect on February 19, 2020, streamlines the chapter 11 reorganization process for small businesses with eligible debt of approximately $2.7 million or less by, for example, expediting the time period and reducing the cost of going through a chapter 11 case. The CARES Act has greatly expanded the number of businesses with access to the SBRA’s benefits, and now any business with less than $7.5 million in total eligible debt can benefit from the SBRA.
The SBRA affords businesses an opportunity to restructure rather than liquidate by offering a path to restructuring with lower costs and fewer procedural burdens. Highlights of the SBRA include:
- A fast-track 90-day Chapter 11 bankruptcy process to file a plan of reorganization with no disclosure statement
- Appointment of a standing trustees to facilitate the development of a consensual plan
- No U.S. Trustee fees
- No unsecured creditors' committee
- Only the debtor can file a plan
- Opportunity for business owners to retain their ownership interests
- A plan can alter rights of creditors with a security interest in the business owner’s residence if the loan secured by the residence was used in connection with the debtor’s business rather than to acquire the residence
The CARES Act amends the SBRA debt ceiling, raising it to $7.5 million of eligible debt, offering the SBRA’s benefits to businesses with almost three times the debt amount allowed when the Act went into effect only six weeks ago. The new limit sunsets after one year, leaving plenty of time for businesses experiencing liquidity issues during and after the current pandemic to explore the new option.
