On February 19, 2020, the Small Business Reorganization Act (the “SBRA”) went into effect, shortly preceding the unprecedented blow to the global economy caused by the coronavirus (COVID-19) pandemic. The coronavirus, as well as government regulations to control the spread of the virus, have forced both public and private enterprises to discontinue operations, shut down facilities, and in some cases have caused companies to close their doors permanently. Thus, businesses, particularly small businesses, are now struggling and unable to pay their creditors, and will need to rely heavily on the SBRA or other alternatives to bankruptcy in order to survive in these uncertain times. This article will discuss in detail what the SBRA is and its benefits for small businesses, the related Coronavirus Aid, Relief, and Economic Security Act, as well as several alternatives to bankruptcy that could prove to be more affordable and efficient for small businesses.
I. What is the Small Business Reorganization Act?
The SBRA was signed into law on August 23, 2019 and was intended to simplify the Chapter 11 bankruptcy process and offer new methods for small businesses to successfully reorganize. Prior to the SBRA, the primary options for struggling small businesses filing bankruptcy were limited to either Chapter 7 or Chapter 11, both of which have their drawbacks. A Chapter 7 bankruptcy is less costly, but involves the debtor’s assets being liquidated by a trustee to pay creditors, rendering the business unable to survive and retain control of its operations. Conversely, a Chapter 11 bankruptcy permits the debtor to retain control of its operations and restructure its debts through a court-approved plan, but the extensive court oversight and stringent requirements associated therewith can be too expensive for small businesses.