Revised Proposal of the Small Business Working Group
I. EXECUTIVE SUMMARY
The structure of chapter 11 is fundamentally sound. Chapter 11 has not, however,
consistently
worked well for "small business"
bankruptcies.
.Summary of Need for Reform
¶ When it works, chapter 11 is very effective in preserving jobs and
going-concern values.
¶When creditors do not participate, however, as is generally true in smaller cases, there
isn’t effective oversight of the debtor-in-possession.
¶Preparing the typical drafted-from-scratch plan and prospectus-type disclosure
statement
is a substantial burden on the debtor, and increases cost and delay in small business chapter 11
cases.
¶A majority of small business chapter 11 debtors have no realistic prospect for
rehabilitation.
¶Nearly all of the approximately sixty people who have appeared before the Working
Group conceded that reforms are needed for small business cases.
.Summary of Proposal
¶Create new separate-track rules that strengthen the 1994 "small business"
amendments to further reduce cost and delay in small business chapter 11 cases.
¶Expand the definition of "small
business" debtors to mean those with liquidated,
noncontingent
debts of less than $10 million.
¶Further simplify the plan and disclosure process by:
(i)directing the Rules Committee to develop standard-form plans and
disclosure statements. Such forms would be compatible with current statistical database
systems and designed to facilitate the collection of reliable data;
(ii)authorizing the court to dispense with disclosure statements
altogether
in appropriate cases;
(iii)expanding use of the provision permitting a combined hearing on
disclosure and confirmation.
¶Require the debtor to file a plan and disclosure statement within 90
days,
and to confirm a plan within 150 days, unless the debtor demonstrates (i) it cannot meet
those
time limits for reasons beyond its control; and (ii) there is more than a 50 percent
likelihood of
confirming a plan within a reasonable period of time.
¶Create uniform rules requiring small business debtors to file financial
reports
regarding postfiling operations. This will educate debtors about the importance of
maintaining
proper books and records. Furthermore, the information the reports provide will assist
debtors to assess their prospects for reorganization and, where necessary, to carry the
burden of proof required to obtain an extension of the plan deadlines.
¶Expand the grounds for conversion or dismissal under Bankruptcy Code
section 1112. Expanded grounds would include [material]: (i) failure to comply with a
court
order; (ii) failure timely to satisfy filing or reporting requirements; (iii) failure to appear
before
the court or the U.S. Trustee for scheduled hearings or meetings; (iv) failure to pay
postpetition taxes or file postpetition tax returns; and (v) failure to act diligently in
proposing a
plan.
¶ Require the bankruptcy court to hold a minimum of one
on-the-record scheduling hearing on notices to all parties in interest, unless the debtor
and
U.S. Trustee promptly file an agreed-upon scheduling order.
¶ Postpone application of the section 362 stay to certain repeat
small business chapter 11 filers, unless and until they show legitimate entitlement to such
protection. [ FN: The Small Business
Working Group notes that liaison with the Consumer Bankruptcy Working Group may be
necessary on
this point about serial filings by individuals.]
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