Small Business Case

By Daisy Rogozinsky
/
June 20, 2022

When a small business debtor files for Chapter 11 bankruptcy, it may be designated as a small business case. In this article, we’ll define the term “small business case” and explain how it differs from other Chapter 11 bankruptcy cases. 

Key Takeaways

  • According to the Bankruptcy Code, a small business case is a case with a small business debtor
  • To qualify as a small business debtor, a debtor must have no more than $2,000,000 in debt and not have a creditors’ committee
  • Small business debtors must make ongoing filings and reports with the court about their profitability and taxes
  • The small business debtor is subject to more oversight by the bankruptcy trustee than other Chapter 11 debtors
  • Small business cases usually proceed more quickly than other Chapter 11 cases

What Is a Small Business Case?

According to Section 11 U.S.C. § 101(51C) of the Bankruptcy Code, a small business case is a case with a small business debtor. There is a two-part test to determine whether or not a debtor qualifies as a small business debtor. 

  1. The debtor must be engaged in commercial or business activities, other than primarily owning or operating real property, with a total non-contingent liquidated secured or unsecured debts of $2,000,000 or less
  2. The debtor’s case must be one in which the trustee has not appointed a creditors’ committee, or the court has determined the creditors’ committee is not sufficiently active and representative to provide oversight of the debtor

Requirements for Small Business Cases

The debtor in a small business case must attach to their petition the most recently prepared:

  • Balance sheet
  • Statement of operations
  • Cash-flow statement
  • Tax return

Alternatively, they can provide a statement under oath explaining the absence of such documents. If they go this route, the debtor must attend court and the trustee meeting through senior management personnel and counsel.

The small business debtor must make ongoing filings with the court concerning their profitability and projected cash receipts and disbursements. They must also report whether they are in compliance with the Bankruptcy Code and whether they have paid their taxes and filed tax returns. 

How Small Business Cases Differ From Other Bankruptcy Cases

Unlike other Chapter 11 debtors, the small business debtor is subject to additional oversight by the bankruptcy trustee. They must attend an initial interview with the trustee so that the trustee can evaluate their viability, inquire about their business plan, and explain debtor obligations including the responsibility to file various reports. The trustee also monitors the small business debtor’s activities during the case to identify whether or not the debtor will be able to confirm a plan.

Small business cases also have different filing deadlines and more difficult obtaining extensions. For this reason, they usually proceed more quickly than other Chapter 11 cases. For example, typical Chapter 11 cases are eligible to have their exclusivity period of filing a reorganization plan extended from 180 days to up to 18 months. In contrast, this period can only be extended to 300 days in small business cases, and only if the debtor can prove that the court will confirm a plan within a reasonable period of time.

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