PBCBA BAR BULLETINS pbcba_bulletin_Nov. 2019 | Page 9

BANKRUPTCY CORNER
The Small Business
Reorganization Act of 2019
JASON S. RIGOLI
On August 23, 2019, what may be cited as
the “Small Business Reorganization Act of
2019” was signed into law. See 11 U.S.C. §§
1181-1195 (the “Act”). The Act, however, does
not take effect until February 2020. The
impetus behind the new law is to streamline
the reorganization process, making it less
expensive to allow the small businesses to
benefit from the Chapter 11 process in the
same manner as larger business. Some key
attributes of the new Act are:
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(i) both individuals and entities
engaged in business with aggregate
debts that do not exceed $2,725,625.00
(not including debts to insiders or
affiliates) are eligible;
(ii) the court must hold a status
conference within 60-days of the
petition date;
(iii) only the debtor can file a Chapter
11 plan and must file the plan within
90-days of filing, except in very limited
circumstances;
(iv) each case will have a trustee
appointed, and the Act authorized
the United States Trustee to appoint
a standing trustee to serve as the
trustee in each case or to appoint a
disinterested person to serve as a
trustee in a case and the trustee’s duties
will be more akin to trustees appointed
in chapter 12 or chapter 13 cases;
(v) there is no creditors committee,
unless the court orders otherwise;
(vi) the debtor can modify the rights of
a creditor with an obligation secured
by the debtor’s principal residence,
where the loan was not used to acquire
the residence but used in connection
with the business;
(vii) a plan can be confirmed without the
support of any class of claims, so long as
the plan does not unfairly discriminate
and is deemed fair and equitable to each
class and provides for payment of all
disposable income of the debtor into the
plan during the life of the plan;
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(viii) the debtor can pay administrative
expense claims over the life of the plan,
instead of paying those claims in full at
confirmation; and
(ix) the debtor gets a discharge. Upon
completion of the all payments due
within the first 3 years of the plan, or
such longer period as the court may fix
(but no longer than 5 years), the court
must grant the debtor a discharge.
The discharge provision of the Act
varies significantly from the current
discharge provision of 11 U.S.C. §
1141, where this discharge applies to
entities and individuals, and all of the
exceptions to discharge set forth in11
U.S.C. § 523 are available to creditors.
In addition to these changes, the Act also
amends other related laws, most notably the
preference and venue laws. The Act modifies
28 U.S.C. § 1409(b), which dictates the venue
a case to avoid a preferential payment must
be filed. Currently the law is, if a debt to
non-insiders is less than $13,650, then the
litigation must be brought in the federal court
in the district where the defendant resides,
not where the bankruptcy is pending. 28
U.S.C. § 1409(b). Upon the Act becoming
effective, that threshold is increased to
$25,000.00. 1 Furthermore, the Act amends
subsection (b) of 11 U.S.C. § 547 to include the
following language: “, based on reasonable
due diligence in the circumstances of the
case and taking into account a party’s
known or reasonably knowable affirmative
defenses under subsection (c),” creating a
condition precedent to filing an avoidance
action against preference transferee.
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In Memoriam
1
There is dispute about whether this threshold
applies to avoidance litigation. See In re Tadich
Grill of Washington DC LLC, 598 B.R. 65, 67-72 (Bankr.
D.C. 2019) (finding 28 U.S.C. § 1409(b) does not apply
to avoidance actions and collecting cases on both
sides at page 67).
This article is submitted by Jason S.
Rigoli, Esq., Furr Cohen, 2255 Glades Road,
Suite 301E, Boca Raton, FL 33431, jrigoli@
furrcohen.com.
PBCBA BAR BULLETIN
9
Frank A. Kreidler
1947 - 2019