In what seems like in the blink of an eye, a once robust economy quickly evaporated, leaving many small businesses with little to no revenue and depleted cash reserves.
The Small Business Reorganization Act (SBRA), which became effective on February 19, 2020, may be a key for small business survival. Prior to the enactment of the SBRA, the bankruptcy reorganization process was seemingly out of reach for the small-business debtor because of the cost and time involved. An entity or an individual can take advantage of SBRA’s more streamlined approach to chapter 11 reorganization. Currently, the debt limit is $7,500,000.00 under the CARES Act but may be reduced next year. A debtor-in-possession under SBRA can keep all property and must formulate a plan to pay back creditors, which may be at a fraction of what is owed. To me, one of the most important changes is that under SBRA the owner of the small-business debtor may retain a stake in the company so long as the plan does not discriminate unfairly, and is fair and equitable with respect to each class of claims or interests.Further, a plan can be confirmed so long as it is fair and equitable and does not discriminate unfairly, even if creditors object to being paid less. The entire case can be wrapped up quickly with payments being made for a period of 3-5 years.