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Subchapter V - A Simple Path to Reorganization?

On February 19, 2020, new provisions to the Bankruptcy Code went into effect as a result of the Small Business Reorganization Act (commonly referred to as Subchapter V of Chapter 11). This new section of the Code had at its core an intent to simplify the process of reorganization and to accelerate confirmation, hopefully reducing costs of administering and executing the plan.

A few of the key highlights of the new provisions include:

• Business or individual debts below $2.75 Million (it appears the CARES Act will raise this limit to $7.5 Million next year)

• Election to proceed under Subchapter V

• Relaxation of certain rules for administration of the plan and no US Trustee Quarterly Fees

• Upon filing the initial petition, the debtor must provide Balance Sheet, Income Statement, Statement of Cash Flows and Federal Income Tax Returns

• The Court will appoint a Subchapter V Trustee, whose role is seen as more facilitator to obtain a consensual plan than someone who takes control of the operations.

• Time frame is condensed with a Status Hearing at 60 Days and Plan of Reorganization to the Court within 90 Days of the petition.

• As alternative to typical Chapter 11 Disclosure statement, the Subchapter V Plan will include a history of the business and the ownership, summary of operations and business prospects, detailed cash flow analysis and forward looking projections supporting that the business will able to meet its restructured obligations.

• Confirmation of the Plan can be achieved without the consent of all creditors, with a few caveats.

• For Confirmation, the Court must find that the Debtor is able to make all payments under the Plan or that it is likely the Debtor will make all payments but remedies exist to protect Creditors is payments are not made as proposed.

• Discharge at Confirmation with a Consensual Plan – this is significant.

EMK Ventures was brought in by the Lead Attorney to evaluate the going concern prospects, true financial and cash flow position and viability of developing a plan of reorganization. With an initial evaluation of a positive outlook for the Company, a Subchapter V Petition was filed on February 26, 2020.

Stay tuned for an update on our observations and experience through the process and (SPOILER ALERT) Confirmation with a Consensual Plan - the First in the District.

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