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Congress Moves to Streamline Chapter 11, Help Small Businesses Restructure Debt

Congressman Tom Marino along with Representatives Doug Collins (R-GA), and David Cicilline (D-RI) introduced, H.R. 7190, the Small Business Reorganization Act (SBRA).  Senate Judiciary Chairman Chuck Grassley (R-IA) and Senator Sheldon Whitehouse (D-RI) introduced companion legislation in the Senate. The bill will streamline existing bankruptcy procedures and provide new tools to increase a small business’ ability to achieve a successful restructuring.

Chapter 11 in the bankruptcy code was designed for administering complex business reorganizations involving multi-million dollar companies. Though several provisions specifically focus on small business debtors, a significant amount of research shows that Chapter 11 may still create difficulties for small businesses, including high costs, deficits, and procedural roadblocks. The SBRA will address these issues by adding a new subchapter V to Chapter 11. By reducing liquidations and increasing recoveries to creditors, the bill will lead to more successful restructurings.

Specifically, key provisions of the Small Business Reorganization Act will increase debtors’ ability to negotiate a successful reorganization and retain control of the business, reduce unnecessary procedural burdens and costs, and increases oversight and ensures quick reorganization.

Congressman Marino issued the following statement:

“The Small Business Reorganization Act is a tremendous step forward in streamlining bankruptcy procedures. By reducing unnecessary procedural burdens, enhancing oversight, and increasing the debtors’ ability to negotiate; we will ensure quick and successful reorganization and provide small business’ the ability to restructure in a way that meets their needs. I thank my colleagues for their work on the introduction of this bill and urge for its timely consideration in both the House and Senate.”

“Small businesses are some of the best innovators in our local economies, and this bill would bring much-needed improvements to the bankruptcy code so that owner-operated businesses can recover from financial hardship and continue creating jobs,” said Rep. Collins.

“Our economy depends on locally owned businesses to create good jobs, invest in our communities, and help hardworking Americans get ahead," said Rep. Cicilline. "The Small Business Reorganization Act is an important step to ensuring that our bankruptcy system works for everyone by giving financially distressed small businesses the tools they need for a fresh start.”

The American Bankruptcy Institute convened a commission to study reforming Chapter 11. Its Co-Chair, Robert J. Keach of Bernstein, Shur, Sawyer & Nelson, applauded the proposed legislation calling it a "a necessary vehicle for a serious discussion about needed reform and the Commission’s proposals."

Earlier Keach testified before the Senate Judiciary Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts in March proposing reforms to reinstate reorganization under the Bankruptcy Code as a viable option for SMEs.

Posted with permission by ABL Advisor.

Diana SalvucciBankruptcy