Bankruptcy Court Takes Steps to Keep Reorganizations Affordable for Small Business Debtors
A bankruptcy court in the Eastern District of North Carolina took a first and important step to effectuate the purpose of the Small Business Reorganization Act (“SBRA”) to make chapter 11 reorganization affordable for small businesses by denying a trustee’s request for counsel as a matter of course, thereby limiting expenses to the debtor’s bankruptcy estate.
Subchapter V bankruptcy cases under the SBRA replaced the role of the Creditor’s Committee, who need separate counsel, with a Subchapter V trustee. The Subchapter V trustee in Penland Heating and Air Conditioning, Inc.sought to employ counsel “as a matter of course but did not have any current need for legal representation in the debtor’s case.” The court denied the trustee’s request for counsel citing favorably that “the intent of the SBRA to streamline and simplify chapter 11 cases for small business debtors and reduce administrative expenses” and that a ”trustee should keep the statutory purpose of the SBRA in mind when carefully considering whether employment of the professional is warranted.”
The court further cautioned “overzealous and ambitious Subchapter V trustees that unnecessary or duplicative services may not be compensated, and other fees incurred outside of the scope and purpose of the SBRA may not be approved.” As case law around this new legislation develops, it is important that courts make discretionary decisions with regard to the implementation of the law that the intent of the SBRA is to make successful reorganizations feasible for small business debtors that file Subchapter V cases.
If you have questions about the Small Business Reorganization Act or if a chapter 11 bankruptcy is right for your Arizona business, the Reorganization Professionals at Mesch Clark Rothschild are here to help you.