New case on qualifying for Subchapter V in bankruptcy

BVWireIssue #249-3
June 21, 2023

federal bankruptcy court, chapter 11, burden of proof, debtor

In 2020, the Small Business Reorganization Act (SBRA) added Subchapter V to Chapter 11 of the Bankruptcy Act, which changes or eliminates some of the Chapter 11 requirements, making it more debtor-friendly. This represents new opportunities for valuation analysts in bankruptcy matters. A new case is a good primer on the qualifications for a debtor to comply with Subchapter V.

Hurdles cleared: In the federal court in New York, a creditor argued that the debtor was not eligible for filing under Subchapter V. The creditor claimed that the debtor was not in commercial or business activities on the date of filing. The court disagreed and also addressed the burden of proof (it was on the debtor) and whether there was a nexus between the debtor’s business activities and the qualifying debt (there was). The court concluded that “the Debtor has met her burden of proving eligibility for subchapter V of Chapter 11 and may proceed accordingly.”

The case isIn re Hillman, 2023 Bankr. LEXIS 1448, and a case analysis and full court opinion are on the BVLaw platform.

Extra: BVR has a webinar on the provisions of Subchapter V and the impact on valuations. A recording is available if you click here.

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