CARES Act Increases the “Small” in the Small Business Reorganization Act of 2019

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April 7, 2020

Client Alert
On February 19, 2020, the Small Business Reorganization Act of 2019 (“SBRA”) came into effect and Debtors with aggregate liabilities that do not exceed $2,566,050 were provided an opportunity to resolve their outstanding liabilities through a newly streamlined and cost‑effective Chapter 11 bankruptcy proceeding. But even before the SBRA could see its first successes (or failures), the Coronavirus Aid, Relieve and Economic Security Act of 2020 (“CARES Act”) increased a small business’s debt threshold to $7.5 million. This increased eligibility will remain in effect for one (1) year.

With only 27% of small business debtors that filed Chapter 11 from 2008-2015 successfully confirming a plan of reorganization, the SBRA is a means to provide small businesses with a chance to avoid liquidation. Some of the key provisions of the SBRA follow:

CARES Act just likely tripled the amount of businesses eligible for protection under SBRA. Whether that means there will be a rush of Chapter 11 filings in the next year is obviously yet to be seen, but with the economic shutdown mainly affecting small businesses such as restaurants and bars, one would expect many more Chapter 11 filings before the end of March 2021.

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