SBRA – commonly known as Subchapter V, referring to new Subchapter V of Chapter 11 of the Bankruptcy Code – may provide a much-needed lifeline to small businesses struggling to survive this crisis.
Advantages of Subchapter V
- There are no quarterly U.S. trustee fees.
- There’s no unsecured creditor committee—important because the debtor has to pay for committee counsel and that drives up the bankruptcy fees.
- No absolute priority rule—meaning equity holders can retain their equity in the company without infusing new capital.
- A plan can be confirmed without acceptance by creditors, so long as the debtor is contributing its maximum disposable income to the plan for 3-5 years and creditors are treated equitably in the plan.
- A plan will be consensual (all creditors agree to it) or nonconsensual. If a plan is consensual, the debtor receives its discharge upon confirmation. If the plan is nonconsensual, the debtor receives its discharge upon plan completion of plan payments.