By The Small Business Reorganization Act of 2019 became law on August 23, 2019. But the date it takes effect is “180 days” later: on February 19, 2020.
This new law helps small business reorganize under Chapter 11 in much the same way that farmers reorganize under Chapter 12 and consumers reorganize under Chapter 13.
The essence of all three laws (Small Business Chapter 11, Chapter 12 and Chapter 13) are these two requirements for plan confirmation:
- Paying the value of non-exempt assets being retained; and
- Committing several years of disposable income to creditors.
Trustee Role and Duties
A trustee is appointed under all three laws: Small Business Chapter 11 (§ 1183), Chapter 12 (§ 1202), and Chapter 13 (§ 1302). And the statutory role and duties of a trustee under each are similar—particularly as between Small Business Chapter 11 and Chapter 12.
Primary Difference
The primary difference in trustee roles and duties, among the three chapters, is a Small Business Chapter 11 provision (in § 1183(b)(7)), which reads:
“The trustee shall— . . . (7) facilitate the development of a consensual plan of reorganization.”
This § 1183(b)(7) provision is unique. In no other place does the Bankruptcy code:
- authorize a trustee to help a debtor in possession develop a plan of reorganization; or
- suggest the goal of a “consensual plan” when the absolute priority does not apply.
Q & A
QUESTION: What, exactly, are the nature and limits of this “facilitate the development” role?
ANSWER: That remains to be determined.
–Financial Adviser Role?
One suggestion is that the Small Business trustee should be a financial wizard who can work with all parties on cash flows, interest rates, payment requirements, and all the numbers puzzles that comprise a plan. After all, financial advisers fill a crucial role in large bankruptcy cases. Such a role is still needed, but rarely used, in small business cases because of limited resources.
–Mediation Role?
The statutory “facilitate” role of the small business trustee, combined with the statutory goal of a “consensual plan,” seems to suggest a mediator-type role. After all, that’s what mediators do: they “facilitate” a process of achieving a “consensual” result.
Unfortunately, the trustee’s role isn’t always neutral. So, perhaps the trustee “facilitate” role is to encourage the parties to use mediation toward achieving a “consensual plan.”
Hmmmm . . . all of that seems right. Mediation it is!
COMPARISON / CONTRAST OF TRUSTEE ROLES AND DUTIES UNDER: § 1183, § 1202 & § 1302
What follows is an attempt at comparing and contrasting—side by side—the statutory trustee language under all three chapters. Items appearing in one statute but not another are highlighted in bold-face or italics.
Subsection (a): Nearly identical
Small Business Act–§ 1183:
‘(a) IN GENERAL.—If the United States trustee has appointed an individual under section 586(b) of title 28 to serve as standing trustee in cases under this sub chapter, and if such individual qualifies as a trustee under section 322 of this title, then that individual shall serve as trustee in any case under this subchapter. Otherwise, the United States trustee shall appoint disinterested person to serve as trustee in the case or the United States trustee may serve as trustee in the case, as necessary.
Chapter 12—§ 1202:
(a) If the United States trustee has appointed an individual under section 586(b) of title 28 to serve as standing trustee in cases under this chapter and if such individual qualifies as a trustee under section 322 of this title, then such individual shall serve as trustee in any case filed under this chapter. Otherwise, the United States trustee shall appoint one disinterested person to serve as trustee in the case or the United States trustee may serve as trustee in the case if necessary.
Chapter 13—§ 1302:
(a) If the United States trustee appoints an individual under section 586(b) of title 28 to serve as standing trustee in cases under this chapter and if such individual qualifies under section 322 of this title, then such individual shall serve as trustee in the case. Otherwise, the United States trustee shall appoint one disinterested person to serve as trustee in the case or the United States trustee may serve as a trustee in the case.
Subsection (b), “The trustee shall—“:
–Subpart (1): Minor differences in bold-face
Small Business Act–§ 1183:
(1) perform the duties specified in paragraphs (2), (5), (6), (7), and (9) of section 704(a) of this title;
Chapter 12—§ 1202:
(1) perform the duties specified in sections 704(2), 704(3), 704(5), 704(6), 704(7), and 704(9) of this title;
[Sic. The omissions of subpart “(a)” from each of these 1202(b)(1) numbers appear to be typo errors.]
Chapter 13—§ 1302:
(1) Perform the duties specified in sections 704(a)(2). 704(a)(3), 704(a)(4), 704(a)(5), 704(a)(6), 704(a)(7), and 704(a)(9) of this title.
–Subpart (2): Minor difference in bold-face and omitted from Ch. 13
Small Business Act–§ 1183:
(2) perform the duties specified in paragraphs (3), (4), and (7) of section 1106(a) of this title, if the court, for cause and on request of a party in interest, the trustee, or the United States trustee, so orders;
Chapter 12—§ 1202:
(2) perform the duties specified in section 1106(a)(3) and 1106(a)(4) of this title if the court, for cause and on request of a party in interest, the trustee, or the United States trustee, so orders;
Chapter 13—§1302:
None.
–Subpart (3): Differences in bold-face
Small Business Act–§ 1183:
(3) appear and be heard at the status conference under section 1188 of this title and any hearing that concerns—
(A) the value of property subject to a lien;
(B) confirmation of a plan filed under this subchapter;
(C) modification of the plan after confirmation; or
(D) the sale of property of the estate.
Chapter 12—§ 1202:
(3) appear and be heard at any hearing that concerns—
(A) the value of property subject to a lien;
(B) confirmation of a plan;
(C) modification of the plan after confirmation; or
(D) the sale of property of the estate;
Chapter 13—§ 1302:
(2) appear and be heard at any hearing that concerns—
(A) the value of property subject to a lien;
(B) confirmation of a plan; or
(C) modification of the plan after confirmation;
–Only in 1302: Omitted from Small Business Act and § 1202
(3) dispose of, under regulations issued by the Director of the Administrative Office of the United States Courts, moneys received or to be received in a case under chapter XIII of the Bankruptcy Act;
–Subpart (4): Nearly identical, with § 1302 addition
Small Business Act–§ 1183:
(4) ensure that the debtor commences making timely payments required by a plan confirmed under this subchapter;
Chapter 12—§ 1202:
(4) ensure that the debtor commences making timely payments required by a confirmed plan;
Chapter 13—§ 1302:
(4) advise, other than on legal matters, and assist the debtor in performance under the plan; (5) ensure that the debtor commences making timely payments under section 1326 of this title;
–Subpart (5): Differences in bold-face & Omitted from § 1302
Small Business Act–§ 1183:
(5) if the debtor ceases to be a debtor in possession, perform the duties specified in section 704(a)(8) and paragraphs (1), (2), and (6) of section 1106(a) of this title, including operating the business of the debtor;
Chapter 12—§ 1202:
(5) if the debtor ceases to be a debtor in possession, perform the duties specified in sections 704(8), 1106(a)(1), 1106(a)(2), 1106(a)(6), 1106(a)(7), and 1203.
Chapter 13—§ 1302:
None.
–Subpart 6: Similar in Small Business Act and § 1302; Omitted from § 1202
Small Business Act–§ 1183:
(6) if there is a claim for a domestic support obligation with respect to the debtor, perform the duties specified in section 704(c) of this title;
Chapter 12—§ 1202:
None.
Chapter 13—§ 1302
(6) if with respect to the debtor there is a claim for a domestic support obligation, provide the applicable notice specified in subsection (d).
–Subpart 7: Exclusively in Small Business Act
Small Business Act–§ 1183:
(7) facilitate the development of a consensual plan of reorganization.
Chapter 12—§ 1202:
None.
Chapter 13—§ 1302:
None.
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MEDIATBANKRY 