Advocacy

Key Points

Subchapter V makes Chapter 11 more attractive to the “small business” debtors that are eligible to file under Subchapter V, but in many respects do so at the expense of unsecured trade creditors. While Subchapter V provides small business debtors with most (if not all) of the same benefits of a “traditional” Chapter 11 filing, it strips away certain elements of traditional Chapter 11 that benefit unsecured trade creditors.

Small business filings under Subchapter V dropped by 45% from June to July 2024 due to the reversion of the temporarily enhanced debt limit from $7.5 million to $3,024,725.

While Subchapter V has been praised for its efficiency, there are concerns over whether it truly facilitates successful reorganizations or merely delays inevitable failures.

It looks like Congress made a New Year’s Resolution of its own: getting its homework done on time!

Congress appears to have reached a tentative deal to keep the government open and fund it through Sept. 30. This is in stark contrast to the last two times (October and November of last year) in which a last-minute extension was passed with little notice and less than a day to spare.

So, the question is: what changed?

Several business-to-business (B2B) credit managers and bankruptcy attorneys from Lowenstein Sandler recently convened with the American Bankruptcy Institute (ABI) Subchapter V Task Force to exchange invaluable insights gleaned from their cumulative experiences in Subchapter V cases.

These credit managers, who are members of the esteemed National Association of Credit Management (NACM), played a pivotal role in orchestrating this collaborative dialogue, shedding light on critical matters within the Subchapter V landscape.

The debt ceiling for Subchapter V increased from $2.5M to $7.5M in total noncontingent, liquidated, secured and unsecured debt as part of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. NACM members testified that with this increased amount, which will sunset without Congressional action on June 21, 2024, Subchapter V bankruptcies have expanded to include medium-sized businesses rather than only small businesses.

California Senate Bill No. 1235 (SB 1235) Does Not Directly Impact Trade Credit

The California Department of Business Oversight recently released regulations pertaining to the content and enforcement of SB 1235, which amends California’s Financing Law (CFL) and sets forth disclosure requirements for “Commercial Financing Transactions.”

Last month’s collapse of Silicon Valley Bank (SVB) saw the first real test of the new bankruptcy procedures put in place for financial institutions under Dodd Frank igniting a new debate on whether the system is working and potentially opening the door for renewed conversation on broader bankruptcy reform.

The Federal Reserve is currently conducting a holistic review of how this was allowed to happen, which they will release on May 1st, but here is what we know now:

After a month of frantic on-again, off-again negotiations between Speaker McCarthy and the White House over the debt ceiling, a bipartisan agreement was reached and eventually signed into law on June 3. Both sides immediately claimed victory and put out two very different narratives about the deal.

Here’s the score as we see it:

The Anti-Money Laundering Act of 2020 (AMLA) established the Corporate Transparency Act (CTA), which requires FinCEN to establish and maintain a national registry of beneficial owners of entities that are considered to be reporting companies.

Information collected pursuant to the CTA will be stored in a private database, according to the American Bar Association (ABA). Enacted in 2021 but taking effect on January 1 of this year, the CTA intends to combat illicit activity including tax fraud, money laundering and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market.