The Oklahoma Bar Journal December 2023

For the foregoing reasons, the Sub V provisions of Chapter 11 have made reorganization a real option for many small businesses that previously had no choice but to close their doors.

debtor flexibility to work through issues with creditors without being pressured to proceed imme diately to confirmation. ARE THEY EASIER TO CONFIRM? Sub V debtors can more easily confirm their plans because, unlike in traditional Chapter 11 cases, Sub V cases lack an absolute priority rule. 17 This rule prohibits junior creditors or equity holders from receiving distributions under a plan until all senior creditors have either been paid in full or have voted to accept the plan. Not having to comply with the absolute priority rule is especially helpful to closely held or family businesses that may struggle to pay all senior creditors their full claims, and retaining equity or ownership is of the utmost impor tance. For many family-owned businesses, this one crucial factor may determine whether reor ganization is a realistic option. Furthermore, in Sub V cases, there is no requirement that any creditor vote to accept the plan. 18 In traditional Chapter 11 cases, there must be an accepting class if the debtor is attempting to “cram

down” its plan over the objection of an impaired class of creditors. 19 A Sub V debtor need not spend the associated professional fees negotiating claim treatment with creditors to find an accepting class vote. To confirm a Sub V plan, the plan must satisfy a “fair and equi table” test, 20 distributing the debt or’s “disposable income” (income over and above the company’s necessary expenses) 21 to creditors over a three- to five-year period or distributing funds or property equal to that calculated amount of disposable income. 22 Prepetition professional fees of up to $10,000 do not disqualify professionals from representing the debtor in a Sub V case. 23 In tradi tional Chapter 11 cases, debtors must ensure there are no outstand ing fees owed to such profession als. Alternatively, the professionals must write off any prepetition balances to still be “disinterested” for case hiring purposes. 24 This is another way the Sub V law eases the path for small business debtors. ARE PREPETITION PROFESSIONAL FEES DISQUALIFYING?

may order otherwise, there is no automatic right to the appointment of an unsecured creditor commit tee. As a result, the estate lacks the additional and often significant expense of paying professional fees for a committee, which include fees for attorneys and financial advisors. 13 IS THERE A SPEEDY PROCESS? There is no deadline to file a plan in a traditional Chapter 11 case (where the debtor is not a SARE). Sub V debtors, how ever, must file their plans within 90 days of the petition date. 14 Further, no disclosure statement is required, saving the debtor the cost of preparation and time required to seek approval of same, 15 and only the debtor may file a plan. 16 In a traditional Chapter 11 case, upon the expi ration of the 120-day exclusivity period, a debtor must expend time and professional fees to seek extension of that protection or con tend with creditors potentially fil ing competing plans. Also, while the Sub V debtor has 90 days to file a plan, there is no deadline under the Bankruptcy Code to confirm the plan, giving the Sub V

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.

8 | DECEMBER 2023

THE OKLAHOMA BAR JOURNAL