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House Approves Small Business Reorganization Act of 2019 (H.R. 3311) and HAVEN Act (H.R. 2938)

Alexandria, Va. — The U.S. House of Representatives today passed the Small Business Reorganization Act of 2019 (H.R. 3311) and the HAVEN Act (H.R. 2938) by a voice vote. ABI testified in support of both bills.

Small businesses are a critical component of the U.S.’s overall economy, but find it extremely difficult to employ the tools of chapter 11 to successfully reorganize. The Small Business Reorganization Act of 2019 (SBRA), introduced by Reps. Ben Cline (R-Va.), David Cicilline (D-R.I.), Doug Collins (R-Ga.) and Steve Cohen (D-Tenn.), is inspired by the work of the National Bankruptcy Conference and ABI’s Commission to Study the Reform of Chapter 11.

“Chapter 11 doesn’t work for small and medium-sized businesses because the Bankruptcy Code (a) places unrealistic and artificial deadlines on [them], which do not give these companies an opportunity to restructure; (b) imposes substantial and costly disclosure and reporting requirements on these companies; (c) does not provide any tools that can help small businesses … create and implement an effective reorganization plan; and (d) makes it difficult for a small business owner to maintain an ownership interest in the business under the current Chapter 11,” ABI Commission Co-Chair Bob Keach (Bernstein Shur; Portland, Maine) testified before a House Judiciary Subcommittee on Antitrust, Commercial and Administrative Law hearing on June 25, 2019.

The SBRA would add a new subchapter V to chapter 11 to address these problems, leading to more successful restructurings, reduced liquidations, saved jobs and increased recoveries to creditors. It adopts the current definition of a “small business debtor” as a person in commercial or business activity with an aggregate or noncontingent liquidated secured and unsecured debts as of its bankruptcy filing date of not more than $2,725,625.

A bipartisan companion bill is pending in the Senate.

The Honoring American Veterans in Extreme Need Act of 2019 (HAVEN Act) (H.R. 2938) was introduced in the House by Reps. Lucy McBath (D-Ga.) and Greg Steube (R-Fla.) and would exclude VA and DoD disability payments from the monthly income calculation used for bankruptcy means testing. The bill was included in the National Defense Authorization Act, which passed on June 27. ABI Veterans Affairs Task Force Member Holly Petraeus, a former assistant director of the Consumer Financial Protection Bureau, testified in favor of the bill on behalf of the Task Force before the House Judiciary Committee.

A bipartisan companion bill is pending in the Senate.

Since its inception, ABI’s Veterans’ Affairs Task Force has focused much of its attention on the Bankruptcy Code’s inequitable treatment of veterans’ benefits in consumer bankruptcy cases. While the Code excludes benefits received by individuals under the Social Security Act from the definition of “current monthly income” and thus from an individual’s “disposable income,” the Code provides no comparable exclusions for benefits received through the U.S. Department of Veterans Affairs or otherwise on account of a veteran’s service. This disparate treatment of veterans’ benefits presents significant hardship to some veterans, as explained in a July 2019 article in the ABI Journal.

“The Small Business Reorganization Act is a breakthrough for Main Street businesses to finally have the restructuring tools now available only to large companies,” said ABI Executive Director Samuel Gerdano. “With proper planning and execution, financially troubled small businesses can emerge from bankruptcy within months following a court-approved plan of reorganization. ABI applauds the House action today.”

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.

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