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H.R. 3311 (116th): Small Business Reorganization Act of 2019

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The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Aug 24, 2019.

Small Business Reorganization Act of 2019

This bill creates new bankruptcy procedures for small businesses filing for reorganization under Chapter 11 and otherwise revises provisions related to venue and trustee responsibilities in Chapter 11 bankruptcies.

(Sec. 2) The bill provides for the appointment of a trustee for a small business debtor filing under these new procedures. The trustee must assist in developing a reorganization plan, account for the property of the debtor, attend certain hearings and conferences, and ensure that the debtor complies with payments required under the plan.

As under current law, a debtor may operate their business as a debtor in possession during the reorganization. The bill sets forth the rights and powers of a debtor in possession, as well as the procedures for removing a debtor in possession.

The bill provides reporting requirements for debtors and reduces the amount of disclosures required by debtors under current law.

Under these new procedures, only a debtor is allowed to file a reorganization plan. Currently, creditors may also submit plans for court approval for small businesses filing under Chapter 11.

The bill sets forth requirements regarding the filing and contents of a plan of reorganization. A debtor must submit all or a portion of future income to the trustee as needed to execute the plan.

The bill provides authority to the bankruptcy court to approve a reorganization plan for small businesses over the objections of the creditors. However, the plan may not discriminate unfairly, and must be fair and equitable towards each class of claims or interests that is impaired under, and has not accepted, the plan. Currently, creditors must generally vote to approve such a plan. Under a fair and equitable plan as established by this bill, a debtor's projected disposable income for at least three years, but no longer than five, must go towards payments under the plan.

(Sec. 3) The bill also provides additional standards a trustee must meet in order to void a preferential transfer for all Chapter 11 filers. (Preferential transfers generally occur when a debtor transfers property before filing bankruptcy that is beneficial to one creditor to the detriment of others.) Specifically, a trustee may only void such a transfer based on reasonable due diligence and must take into account a party's known or reasonably knowable affirmative defenses.

The bill also revises venue criteria for proceedings connected with a Chapter 11 bankruptcy case. Currently, an action to recover a debt against a noninsider (i.e., those that are not relatives, general partners, and directors or officers of the debtor) of less than $13,650 must be brought in the district court where the defendant resides. The bill increases that amount to $25,000.

(Sec. 5) This bill takes effect 180 days after enactment.