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The Small Business Reorganization Act Arrives in February 2020: Here's What You Need to Know

With President Trump’s signature August 23rd, the Small Business Reorganization Act of 2019 (“SBRA”) will officially take effect in February 2020.

The SBRA is designed to fill a gap in the current bankruptcy laws by providing a framework for small businesses to successfully reorganize in bankruptcy court.  As noted by the senate bill’s sponsor, Iowa Senator Charles Grassley, “Chapter 11 was designed for administering complex business reorganizations involving multi-million dollar companies.”  Due to this design, small businesses are frequently overwhelmed with the burdens of Chapter 11, cannot craft successful plans and are routinely forced to liquidate. Plus, chapter 13 bankruptcy is not a viable alternative for many small businesses; this form of reorganization is only available for sole proprietorships, as only individuals are eligible to be debtors in chapter 13.

Amendments to the Bankruptcy Code 

Under the SBRA, the Bankruptcy Code will be amended to ease the procedural burden on small businesses seeking reorganization.  The SBRA amends the Bankruptcy Code with the addition of a new subchapter to Chapter 11, defining a small business debtor as an entity with an aggregate of noncontingent liquidated secured and unsecured debt of not more than $2,725,625.

Key provisions take their cue from Chapter 13. For example, a small business will not be required to be a debtor-in-possession, which for a small business can create a whole new panoply of logistical concerns.  The SBRA mandates a standing trustee to be appointed in every small business Chapter 11, similar to the existing statutes for Chapter 12 and Chapter 13.  Among other provisions, the new subchapter will now allow a small business to confirm a plan over the objections of creditors, which is a significant change and should greatly increase the overall success rate for small businesses.

With provisions that increase a small business’ ability to negotiate with creditors, a reduction in procedural burdens and costs, and an increase in oversight, the SBRA hopefully should create a valuable framework for small businesses to successfully reorganize.

© Horwood Marcus & Berk Chartered 2020. All Rights Reserved.National Law Review, Volume IX, Number 253



About this Author

Aaron Hammer Bankruptcy Attorney HMB
Bankruptcy Chair

Aaron is a partner at HMB and leads the firm’s Bankruptcy, Reorganization and Creditors’ Rights practice. He devotes his practice to solving his client’s most challenging insolvency and creditors’ rights issues.

Over more than twenty years, Aaron led major engagements on behalf of corporate borrowers, lenders, vendors and financiers and, most notably, bankruptcy committees – both official and unofficial – in countless significant bankruptcies and workouts across the country and in many foreign countries. He represents clients, including chapter...

Nate Delman Bankruptcy Lawyer HMB Chicago

Nate is an associate in HMB’s Bankruptcy, Reorganization and Creditors’ Rights Group. His practice focuses on business reorganization and the protection of secured and unsecured creditor’s rights in insolvency situations. He is also the firm’s resident resource on personal bankruptcy.

Nate has practiced bankruptcy for over a decade and has handled matters of all sizes. He also has experience in citation hearings, foreclosure defense and litigating adversary proceedings in bankruptcy court. He thrives in high-pressure situations and has a knack for distilling complex information in plain English for his clients.