The Small Enterprise Reorganization Act (SBRA), which was signed into legislation on August 23, 2019, and went into impact as of February 19, 2020, put in place what is usually often known as “Subchapter V” in the reorganization trade. Below the SBRA, a certified “small business debtor” might elect to be handled as a Subchapter V debtor if, amongst different issues, the debtor’s mixture, noncontingent, liquidated secured and unsecured money owed as of the petition date totaled not more than $2,725,625. Qualification as a Subchapter V debtor would ostensibly make the chapter 11 course of extra accessible, economical, and useful for small enterprise debtors making the election, as a result of the SBRA was designed for smaller enterprise that in any other case can not afford the administrative charges and different prices related to conventional Chapter 11 instances (even conventional small enterprise Chapter 11s).
The unfold of COVID-19 in Spring of 2020, nevertheless, prompted Congress to alter the debt limitation. As a part of the Coronavirus Assist, Aid, and Financial Safety Act of 2020 (CARES Act), Congress briefly elevated the $2,725,625 debt restrict to $7,500,000. That enhance allowed extra debtors to qualify and elect remedy underneath the Subchapter V provisions. Nonetheless, the CARES Act supplied that the debt limitation would mechanically revert again to $2,725,625 on March 27, 2021. Below the COVID-19 Chapter Aid Act of 2021, Congress prolonged that reversion date to March 27, 2022.
It was unclear throughout the months main as much as the March 27, 2022 expiration of the elevated debt restrict whether or not Congress would act to additional prolong the expiration date. Certainly, the nation seems to have turned a nook with regard to hospitalizations because of COVID-19, and the financial system for a lot of the nation was for all intents and functions totally “open” and past the financial devastation brought on by the momentary shutdowns in 2020 and 2021. For example, as of March 30, 2022, the Facilities for Illness Management and Prevention eliminated its “Cruise Ship Travel Health Notice” that really useful in opposition to touring on cruise ships, signaling a optimistic flip for certainly one of the industries arguably most impacted by COVID-19.
Congress in the end failed to increase the March 27, 2022 deadline. Maybe this was because of COVID-19 receding from the headlines. In spite of everything, in response to a Quinnipiac College Ballot launched on March 30, 2022, COVID-19 now ranks behind, amongst different points, inflation, the Russia-Ukraine invasion, immigration, local weather change, election legal guidelines, and crime as the most pressing points in the United States. See here. Moreover, the mid-term elections are simply round the nook. One factor is for certain – it’s an unsure political and financial setting wherein nobody can predict precisely what Washington D.C. will do.
A everlasting enhance in the Subchapter V debt restrict might, nevertheless, be forthcoming. On March 14, 2022, Senators Durbin (D-IL), Whitehouse (D-RI), Cornyn (R-TX), and Grassley (R-IA), launched the Chapter Threshold Adjustment and Technical Corrections Act (S. 3823, 117th Cong.), which seeks, amongst different issues, to completely enhance the Subchapter V debt restrict to $7,500,000. Though the invoice has not made its means by means of the whole legislative course of earlier than the sundown of the elevated debt restrict, the Senate handed amended S. 3823 by unanimous consent on April 7, 2022. The Home obtained the invoice on April 11, 2022. See here.
However, what does this imply for now? It implies that debtors who would in any other case qualify underneath Subchapter V previous to March 27, 2022, will not qualify as a result of they are going to exceed the debt limitation now in play (which mechanically elevated pursuant to the SBRA to $3,024,725 on April 1, 2022). However this minimal enhance, the sundown of the elevated debt restrict arguably just isn’t excellent news for professional small enterprise debtors whose monetary issues could also be attributed to COVID-19 (for instance, supply-side shortages and labor shortages) or who might now be going through elevated monetary strain because of inflation.