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On August 23, 2019, the President signed the Small Business Reorganization Act of 2019 (H.R. 3311). The law will take effect in February 2020. The Act is intended to ensure “that small businesses will be able to reorganize and rehabilitate their financial affairs effectively under the Bankruptcy Code,” said American Bankruptcy Institute (ABI) Executive Director Samuel J. Gerdano. The ABI supported passage of the Act.
Generally, the Act relaxes the plan confirmation requirements for qualifying businesses by not requiring a disclosure statement, removing the need to obtain at least one class of impaired consenting non-insider creditors if the plan does not unfairly discriminate and is fair and equitable as to non-consenting, impaired classes, allowing the payment of administrative claims over time, rather than on plan effective date, and eliminating the “absolute priority rule” in cramdown situations.
It will be interesting to see the practical effects of the Act and whether it persuades otherwise reluctant “small businesses” to file for chapter 11 relief. Stay tuned.