Senate Bill 3675: Bill Proposes to Change Chapter 11 Process and Redefine “Small Business Debtors”
By On July 29, 2010, Senator Sheldon Whitehouse (D-RI) introduced Senate Bill 3675 (”Small Business Jobs Preservation Act”), which proposes to make it easier, quicker, and cheaper for small businesses to emerge from Chapter 11 bankruptcy. The highlights of the bill include:
a. Definition of small business debtor. The Act defines a small business debtor as one with total liquidated, non-contingent debts of not more than $7,500,000 (excluding debts owed to insiders), of which at least half of those debts arose from the debtor’s commercial or business activities.
The Bankruptcy Code currently sets the amount at $2,190,000 unless an unsecured creditors’ committee has been appointed and does not have a limitation on the type of debt).
b. Exclusivity. The Act provides for an exclusivity period of 90 days.
The Bankruptcy Code currently sets the exclusivity period at 180 days for small businesses.
c. Cramdown. The Act permits cramdown “if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” The term “fair and equitable” requires the plan to (i) satisfy section 1129(b)(2)(A) for secured claims, (ii) make all projected disposable income (or not less than its equivalent value) distributed over a three or five year period (decided by the court), and (iii) demonstrate a reasonable likelihood that the debtor will make all the plan payments with default remedies provided to the claim holders.
The Bankruptcy Code cramdown procedure, which sets forth requirements for cramming down unsecured claims, is currently codified in 11 U.S.C. 1129(b).
The Act further provides that a trustee will play an active role in the process and perform many of the duties laid out in section 704, as well as the distribution of plan payments to be made pursuant to a cramdown confirmation. The bill has been referred to the Senate Committee on the Judiciary and is awaiting a committee report.
If enacted, and considering that the overwhelming majority of Chapter 11 cases involve less than $7,500,000 of qualifying debt, the Act will have a significant impact on Chapter 11 practice. The text of the bill is available at http://www.govtrack.us/congress/billtext.xpd?bill=s111-3675.
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