Subchapter V of Chapter 11 of the Bankruptcy Code offers a streamlined and cost-effective path to reorganization specifically designed for small businesses. Unlike traditional Chapter 11 cases, Subchapter V lacks certain creditor protections, which can place creditors at a disadvantage. Key differences include the absence of a creditors’ committee, no requirement for a disclosure statement, and exclusive rights for the debtor to propose a plan. These changes aim to reduce costs and expedite the process but may limit creditors’ influence over the case outcome.
Eligibility for Subchapter V is restricted to small business debtors with no more than $3,024,725 in aggregate, noncontingent, liquidated secured and unsecured debts, with 50% of such debts arising from commercial or business activities. The CARES Act temporarily increased this threshold to $7.5 million, but this provision expired in June 2024. Additionally, Subchapter V eliminates the Absolute Priority Rule and does not require creditor voting on the plan, further diminishing creditors’ leverage.
Despite these limitations, Subchapter V cases are designed to be efficient and fast-moving, providing a viable reorganization option for small businesses. Creditors navigating a Subchapter V case should seek experienced bankruptcy counsel to ensure their interests are adequately protected throughout the process. Read full article here.