Restructuring with SBRA

Key Aspects of Restructuring with SBRA

1. Eligibility

1. • Small Business Criteria: To qualify for SBRA, a business must meet the definition of a “small business debtor,” which typically means having noncontingent liquidated debts of $2,725,625 or less. However, the debt limit was temporarily increased to $7.5 million under the CARES Act due to the COVID-19 pandemic.
   • Business Activity: The business must be engaged in commercial or business activities.

2. Streamlined Bankruptcy Process

1. • Simplified Procedures: SBRA simplifies the bankruptcy process, reducing the administrative burden and costs associated with traditional Chapter 11 cases.
   • Expedited Timelines: The act sets faster timelines for filing and confirming a reorganization plan, promoting quicker resolutions.

3. Debtor in Possession

1. • Management Control: Under SBRA, the debtor remains in control of their business operations as a “debtor in possession,” allowing them to continue running the business while restructuring.

4. Trustee Appointment

1. • Subchapter V Trustee: A trustee is appointed to oversee the case, but their role is more limited compared to traditional Chapter 11 cases. The trustee assists with developing the reorganization plan and ensures compliance with the bankruptcy process.

5. Reorganization Plan

1. • Plan Submission: The debtor must submit a reorganization plan within 90 days of filing for bankruptcy.
   • Plan Confirmation: The plan can be confirmed without the approval of creditors if it is fair, equitable, and meets other legal requirements. This is known as a “cramdown” plan.

6. Cost Efficiency

1. • Reduced Costs: SBRA reduces the costs of the bankruptcy process by eliminating the need for a creditors’ committee and allowing for more flexible reporting requirements.

Benefits of Restructuring with SBRA

1. Continued Operations

1. • Business Continuity: SBRA allows small businesses to continue their operations during the restructuring process, minimizing disruption to their activities and preserving jobs.

2. Efficient Debt Restructuring

1. • Debt Adjustment: The act provides mechanisms for adjusting debt obligations, allowing businesses to reorganize their finances and emerge stronger.

3. Increased Likelihood of Success

1. • Simplified Process: The streamlined and cost-effective nature of SBRA increases the likelihood of a successful reorganization, compared to traditional Chapter 11 processes.

4. Protection from Creditors

1. • Automatic Stay: Filing under SBRA provides an automatic stay, which halts all collection actions from creditors, giving the business breathing room to reorganize.

5. Enhanced Negotiation Leverage

1. • Cramdown Provision: The ability to confirm a reorganization plan without creditor approval provides the debtor with greater leverage in negotiations.

6. Support and Oversight

1. • Trustee Assistance: The appointed trustee provides valuable support and oversight, helping to navigate the complexities of the bankruptcy process and ensure compliance.

Steps to Restructure with SBRA

1. Evaluate Eligibility

1. • Assess whether the business meets the criteria for SBRA, including the debt limits and nature of business activities.

2. Prepare for Filing

1. • Gather necessary financial documents and consult with a bankruptcy attorney to prepare the bankruptcy filing.

3. File for Bankruptcy

1. • File the bankruptcy petition under Subchapter V of Chapter 11 with the bankruptcy court.

4. Develop a Reorganization Plan

1. • Work with the appointed trustee to develop a feasible reorganization plan that addresses debt obligations and operational adjustments.

5. Submit and Confirm the Plan

1. • Submit the reorganization plan within 90 days of filing. Seek plan confirmation through the court, utilizing the cramdown provision if necessary.

6. Implement and Monitor the Plan

1. • Implement the confirmed reorganization plan, making necessary operational changes and debt payments. Continuously monitor compliance with the plan and make adjustments as needed.

Conclusion

Restructuring with the SBRA offers small businesses a viable pathway to financial recovery and growth. By providing a streamlined, cost-effective, and efficient bankruptcy process, SBRA enables businesses to reorganize their debts, continue operations, and emerge stronger. With the support of a trustee and the ability to confirm a reorganization plan without creditor approval, businesses can navigate the challenges of financial distress and achieve long-term success.