The American Bankruptcy Institute’s Subchapter V Task Force unveiled its final report of recommendations pertaining to the $7.5 million debt sublimit for Subchapter V filings within Chapter 11 of the U.S. Bankruptcy Code. The report’s key recommendation calls for permanently maintaining the filing eligibility limit of $7.5 million in aggregate noncontingent, liquidated debt for small businesses looking to reorganize under Subchapter V.
According to the report, the new debt sublimit for Subchapter V is achieving its objective of helping more small businesses reorganize efficiently in bankruptcy while also offering best practices and potential statutory amendments for policymakers, judges and practitioners to consider.
The original debt eligibility for Subchapter V was set at $2.7 million as part of the Small Business Reorganization Act, which went into effect in February of 2020. The limited was expanded to $7.5 million the following month as part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), with subsequent legislative extensions extending the maintenance of the threshold to June 2024.
Prior to the release of the ABI’s final report, legislation was introduced in the U.S. Senate to consider an extension of the current $7.5 million Subchapter V debt sublimit to 2026.
In anticipation of the sunsetting of the expanded threshold, the ABI formed a task force last April to look into the matter by examining case law and statistical data related to Subchapter V filings. The task force is made up of a nine-member panel of judger, practitioners, trustees and academics. The task force published a preliminary report of its findings and recommendations to continue with the $7.5 million sublimit in December and sent a letter to Congress in March to provide additional evidential support.
The final report is the result of nine months of public hearings, roundtable discussions and an survey inviting comment on Subchapter V. The final report offers key recommendations pertaining to eligibility, the role of a Subchapter V trustee, case administration, plan and confirmation issues, and post-confirmation administrative matters.
Prior to releasing its final report, the ABI disclosed some of its findings in a press release, noting that more than 25% of Subchapter V filings in the four years following the passage of the CARES Act would not have been possible without the increased sublimit, with total Subchapter V filings accounting for nearly a third of Chapter 11 filings in that time.
