The Oklahoma Bar Journal December 2023

B ankruptcy

All Aboard the Sub V Train Faster, Cheaper Relief for Small Businesses Facing Financial Distress

By Christina W. Stephenson

B USINESSES AND FAMILIES CONTINUE TO STRUGGLE with the crushing impact of inflation and higher interest rates. Bankruptcy statistics from across the country reflect that now more than ever, companies, especially small businesses, are seeking options for relief. Data collected by the U.S. bankruptcy courts shows a significant increase in commercial and personal bankruptcy filings in the first half of 2023 when compared to that same period in 2022. Per Epiq Global, overall commercial filings increased by 18%, while small business cases filed as Subchapter V elections within Chapter 11 increased by a surprising 55%. 1

must engage in “commercial or business activities,” and at least 50% of its debt must arise from such activities. 2 The current debt limit is $7.5 million. 3 This assess ment includes the aggregate noncontingent liquidated secured and unsecured debts of the poten tial debtor’s affiliates, excluding debts owed to insiders or affiliates. 4 Public companies (and affiliates of public companies) 5 and single asset real estate (SARE) entities are not eligible. 6 Eligibility is calculated as of the petition filing date. 7 Unlike traditional Chapter 11 cases, all Sub V cases employ a Sub V trustee. 8 Sub V trustees are unlike their Chapter 11 peers, which are sometimes appointed in the context of a traditional Chapter 11 IS THERE A TRUSTEE?

When advising a company facing financial distress, it is important to acknowledge both the eligibility qualifications and the potential benefits of various elec tions. This article explains some of the fundamental differences between small business cases filed under Subchapter V of Chapter 11, or “Sub V cases,” and traditional Chapter 11 cases. It then notes that Sub V cases are generally a supe rior option to traditional Chapter 11 cases for small businesses because they are faster and less expensive, providing more attainable relief for small or closely held businesses. WHO CAN FILE? To qualify as a debtor for a Sub V filing, a business must meet the eligibility requirements under 11 U.S.C. §1182(1). Primarily, it

case when a debtor-in-possession loses the right to manage its estate for cause. A Sub V trustee is tasked with facilitating the development of a consensual plan of reorganization and often aids the debtor in resolv ing creditor disputes. 9 The estate is responsible for paying the Sub V trustee a monthly fee. 10 However, these costs are offset by the fact that no quarterly U.S. trustee fees are charged in Sub V cases. 11 WILL A CREDITORS’ COMMITTEE BE APPOINTED? Traditional Chapter 11 cases generally have a committee appointed to represent the inter ests of general unsecured creditors who might otherwise lack the incentive or means to participate in a meaningful way. 12 However, in a Sub V case, though the court

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

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