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Move Over, Section 363: Why Buyers May Prefer Plan Sales in Subchapter V

American Bankruptcy Institute (ABI) Journal

  • September 2020

Chip Ford and Ashley Edwards wrote an article in the American Bankruptcy Institute (ABI) Journal on an attractive new option for buyers of bankruptcy assets and small businesses looking to reorganize. 

"Although business assets can be bought and sold through the chapter 11 plan confirmation process, section 363 of the Bankruptcy Code has in many cases been the preferred mechanism for buyers due to its relative speed, greater simplicity, and lower transactional costs," Chip and Ashley wrote. "But Congress may have shifted the playing field for asset sales in smaller business bankruptcy cases through the enactment of the Small Business Debtor Reorganization Act (SBRA), which is now known as subchapter V of chapter 11."

"Subchapter V took effect on February 19, 2020, and it accelerates the process and reduces the costs of reorganization for small businesses," they wrote. "Recently, Congress expanded those eligible for relief under subchapter V by nearly tripling the debt limit (from $2.7 million to $7.5 million) as part of its response to the coronavirus pandemic."

"The equation hasn’t only changed for small business debtors," they continued. "On the other side of the deal table, when a debtor qualifies for and elects treatment under subchapter V, opportunistic buyers may find that they can achieve the benefits of a sale pursuant to a confirmed plan while avoiding some of the more burdensome aspects of the traditional Chapter 11 plan confirmation process. However, because subchapter V is only a few months old, there are still outstanding questions about how business debtors, opportunistic buyers, and bankruptcy practitioners can leverage its unique features."

You can read the full article here. The ABI Journal is the leading resource for the bankruptcy community, with an online and print audience of more than 40,000 attorneys, bankers, judges, lenders, and other professionals.