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About a month ago, President Donald Trump signed a new law called the Small Business Reorganization Act of 2019, which will go into effect this February. Its impact on small businesses is expected to be significant, according to a Philadelphia Inquirer commentary. The act is a “a fantastic accomplishment by the federal government and the National Bankruptcy Conference, American Bankruptcy Institute and National Conference of Bankruptcy Judges, all of whom had a hand in drafting and guiding the act to be signed into law,” writes lawyer Kyle F. Arendsen in the National Law Review. “Struggling small businesses should consider it as a potential remedy to their financial distress.”
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Effective in February 2020 (180 days after August 23, 2019), the SBRA adds a new subchapter V to chapter 11 of the Bankruptcy Code. The change is intended to provide a better path for small businesses to restructure successfully, reduce liquidations, preserve jobs, and increase creditor recoveries, while recognizing the value provided by small business owners, according to Jones Day's Business Restructuring Review.
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The Small Business Reorganization Act of 2019 became law on August 23, 2019. But the date it takes effect is “180 days” later: on February 19, 2020, according to the MediatBankruptcy blog. This new law helps small business reorganize under Chapter 11 in much the same way that farmers reorganize under Chapter 12 and consumers reorganize under Chapter 13.
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The Small Business Reorganization Act of 2019 adds a new subchapter V to chapter 11 for small businesses, according to the CreditSlips blog. The new subchapter gives small businesses the option of choosing a more streamlined -- and hence cheaper and quicker -- procedure than they would find in a regular chapter 11. Perhaps most significantly, the absolute priority rule, which requires creditors to be paid in full before owners retain their interests, does not apply. For those interested in more detail, the Bradley law firm has a good blog post summarizing the key points of the new law, which takes effect in February 2020 (and if I have the math correct -- February 19 to be exact).
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The Small Business Reorganization Act is now law, according to the Mediatbankry blog. The House of Representatives passed it on July 25, 2019; The Senate passed it on August 1, 2019; and The President signed it on August 23, 2019. This Act is much-needed and long overdue. It provides Chapter 12-type relief for small businesses within Chapter 11.
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At the end of August, Donald Trump signed into law the Small Business Reorganization Act of 2019, according to a report in The Guardian. The law will take effect on 19 February 2020 and it currently affects companies that have less than $2,725,625 in debts. What does it do? For starters, the new law gives small business owners 90 days to file a reorganization plan, with easier rules for extending.
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After 10+ years of practice under the 2005 Act, Congress concluded that “[n]otwithstanding the 2005 Amendments, small business chapter 11 cases continue to encounter difficulty in successfully reorganizing.”[3] In response and to “streamline the bankruptcy process by which small businesses [sic] debtors reorganize and rehabilitate their financial affairs,”[4] Congress enacted the Small Business Reorganization Act of 2019 (“2019 Act”).[5] The 2019 Act was signed by the President on August 23 and will become effective 180 days thereafter, according to a JD Supra analysis.
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Congress approved, and earlier this month the President signed, the Small Business Reorganization Act of 2019 which streamlines existing rules governing the efforts of small businesses to restructure successfully under Chapter 11 of the Bankruptcy Code, according to a National Law Review analysis. The law effectively makes it more difficult for creditors to contest small business Chapter 11 cases, but it also provides creditors in all bankruptcy cases several major benefits through changes to the preference laws.
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On August 23, President Trump signed into law two new pieces of legislation—the Family Farmer Relief Act of 2019 and the Small Business Reorganization Act of 2019—that will likely lead to an increase in bankruptcy filings from both small businesses and family farm operators, according to an analysis on JD Supra. Lenders and trade creditors with exposure to these enterprises need to be aware of the changes in the law and take precautionary measures by reassessing risk and heightening their vigilance.
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Over the years, much has been written about the Bankruptcy Code’s treatment of small businesses, and the American Bankruptcy Institute Commission’s testimony to Congress this summer made clear that the existing law fell short of providing necessary relief for small businesses, according to a commentary on Lexology. For example, of the 18,000 small business bankruptcy cases filed between 2008 and 2015, less than 27% of those cases resulted in confirmed plans of reorganization. And these numbers excluded countless small businesses that, for a variety of reasons, did not or could not seek bankruptcy relief. On August 23, 2019, the President signed four bipartisan bankruptcy bills into law, providing the first significant amendments to the Bankruptcy Code since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (and not counting the Bankruptcy Technical Corrections Act of 2010). The first bill is the Small Business Reorganization Act (H.R. 3311; S. 1091) (SBRA), which is intended to “simplify the process for small businesses to use bankruptcy as a means of reorganization.”[1] The SBRA adds new Subchapter V (11 U.S.C. §§ 1181-1195) to the Bankruptcy Code.
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