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SBRA Springs to Life

We reported on the adoption of the Small Business Reorganization Act of 2019[1] (“SBRA”), with its 180-day runway to effectiveness, at the time of its adoption last year.[2]  The wait is over, and SBRA is springing to life.

Progressive Solutions, Inc. (“Debtor”) had filed a petition in the Central District of California under the pre-SBRA small-business provisions of Chapter 11 in 2018.  On January 30, the Debtor moved for permission to amend its petition so as to put it under Subchapter V, the small business provisions adopted by SBRA.  After reviewing SBRA’s text and legislative history, Bankruptcy Judge Scott Clarkson concluded in what is likely the first SBRA opinion that--

nowhere in SBRA are there stated limitations to the application of SBRA . . . to pending cases. . . .  [T]his Court has found no legal reason to restrict a pending Chapter 11 case to re-designate to a Subchapter V case . . . .  No party has submitted any legal reasoning to support a blanket prohibition of such redesignation by the Debtor.  The arguments against [a] pending case being designated by the Debtor as a Subchapter V case all have to do with practicality and not legality.[3]

In addition to the entire absence of a prohibition on retroactive application, Judge Clark was persuaded by “the primary purpose of SBRA” as reflected in the legislative history being “to promote successful reorganizations using the tools that are now available under current law,” which is advanced by its application to pending cases.[4]

The “practicality” to which Judge Clark alluded concerns the need to honor SBRA’s various benchmarks and deadlines in a redesignated case.[5]  He concluded that observing these SBRA requirements following redesignation might be “redundant or procedurally awkward,” but that “there are no bases in law or rules to prohibit a resetting or rescheduling of these procedural matters” unless doing so jeopardized “any vested rights of a debtor or any other party in interest” that had not been waived.[6]

[1]  Public Law 116-54, signed by the President on August 23, 2019.

[3]  In re Progressive Solutions, Inc., 8:18-bk-14277-SC, slip op. at 8, 10 (Bankr. C.D. Cal. Feb. 21, 2020).

[4]  Id. at 10.

[5]  E.g., Section 1188(a) as added by SBRA requires the court to “hold a status conference to further the expeditious and economical resolution of a case under this subchapter” “not later than 60 days after the entry of the order for relief,” which, in a pending case that is more than 60 days old and is redesignated, is literally impossible.

[6]  Slip op. at 9.