COVID-19: Small Business Bankruptcy Relief

Last week, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, implementing broad relief for individuals and businesses affected by COVID-19.  One of the sections of the CARES Act receiving less attention is a temporary amendment to the Bankruptcy Code to provide streamlined reorganization procedures for businesses with debt of less than $7.5 million. 

In February 2020, President Trump signed into law the Small Business Reorganization Act (SBRA) designed to decrease the cost and complexity of reorganization for small businesses with debt of less than $2,725,625.  The SBRA allows these smaller businesses to confirm a plan without the need for a disclosure statement and owners to retain their business without providing new value under the plan.  In an SBRA bankruptcy, an unsecured creditors’ committee will generally not be formed, and each case will have a trustee who can assist the debtor in negotiating a plan and administering plan payments. 

For the next year, the CARES Act expands eligibility for the SBRA by increasing the debt limit under the SBRA from $2,725,625 to $7.5 million.  This increase temporarily opens the door to streamlined chapter 11 tools to assist larger businesses than originally contemplated facing unprecedented challenges during this time.  

We expect additional changes to the Bankruptcy Code will be enacted to address the economic fallout from COVID-19.  At Kelley Drye, we have a team of legal advisors across practices and geographies collaborating to help clients navigate this uncertain environment.  We invite you to access the Kelley Drye COVID-19 Resource Center for information and webinars on these rapidly evolving circumstances.