To reorganize under Chapter 11 bankruptcy, big corporations and small businesses generally have to follow the same rules. However, special provisions exist for small business debtors that can speed along the Chapter 11 process
To qualify as a small business debtor under the Bankruptcy Code, a person or company must:
- Be engaged in commercial or business activities
- Owe no more than $2.566 million in total claims (excluding debts owed to family members or other insiders)
Small business Chapter 11 cases also have the following special procedures that differentiate them from large corporation Chapter 11 filings:
Creditors’ committee not mandatory. In most Chapter 11 cases, a committee is typically appointed to represent all the unsecured creditors. This can increase the cost to the debtor since the committee can retain counsel and other professionals, with the cost assigned to the debtor. In small business cases, the court can elect not to appoint a creditors’ committee.
More Trustee oversight. Under the Bankruptcy Code, small business cases are subject to additional oversight by the U.S. Trustee’s office compared with other Chapter 11 cases.
More reporting and filing requirements. When filing Chapter 11, a small business id required to include more documentation than other Chapter 11 filers, including a federal tax return, cash flow statement, balance sheet and statement of operations.
Deadline for filing reorganization plan. Unless a bankruptcy court sets one, there is generally no deadline for filing a Chapter 11 plan. However, in small business cases, the debtor must propose a plan within 300 days of filing. This deadline can be extended by the court, but only if the debtor can provide proof of the ability to gain approval of a plan in a reasonable period of time.
Extended exclusive period. In many Chapter 11 cases, creditors will file competing plans that typically call for the liquidation or takeover of a debtor’s business assets. When this occurs, the debtor has 120 days to propose a Chapter 11 plan. This exclusivity period is extended to 180 days for small business cases, which helps reduce the risk that the debtor will have to bear additional legal expenses to litigate competing plans.
Waiver of disclosure statement. The bankruptcy court can waive the requirement for small business debtors to prepare a disclosure statement, which helps to speed the process and reduce legal costs. In other Chapter 11 cases, debtors must prepare and submit a disclosure statement to creditors that includes detailed information about the debtor and the reorganization plan.
Johnson Legal PC offers effective valued solutions along with exceptional legal expertise and creative thinking for New Jersey and New York businesses. Contact us to learn more about how a great corporate attorney can help your business thrive.
