The debt ceiling for Subchapter V increased from $2.5M to $7.5M in total noncontingent, liquidated, secured and unsecured debt as part of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. NACM members testified that with this increased amount, which will sunset without Congressional action on June 21, 2024, Subchapter V bankruptcies have expanded to include medium-sized businesses rather than only small businesses.
COLUMBIA, Md., Nov. 15, 2023 /PRNewswire-PRWeb/ -- Several business-to-business (B2B) credit managers and bankruptcy attorneys from Lowenstein Sandler recently convened with the American Bankruptcy Institute (ABI) Subchapter V Task Force to exchange invaluable insights gleaned from their cumulative experiences in Subchapter V cases.
These credit managers, who are members of the esteemed National Association of Credit Management (NACM), played a pivotal role in orchestrating this collaborative dialogue, shedding light on critical matters within the Subchapter V landscape.
"The credit managers who participated in this opportunity gave the entire B2B credit industry a voice when it comes to Subchapter V," said NACM President Robin Schauseil. "We are thrilled that the Subchapter V Task Force took the time to listen to our members' concerns."
The debt ceiling for Subchapter V increased from $2.5M to $7.5M in total noncontingent, liquidated, secured and unsecured debt as part of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act. NACM members testified that with this increased amount, which will sunset without Congressional action on June 21, 2024, Subchapter V bankruptcies have expanded to include medium-sized businesses rather than only small businesses.
"We hope the information we provide today will offer a different perspective on Subchapter V and our recommendations for the commission are considered as they move forward," said Mike Mandell, corporate collection manager at Ryder System, Inc. (Miami, FL). "I have yet to see a Subchapter V plan succeed. The Subchapter V plans that Ryder has been involved in have failed where the customer stops paying."
Credit professionals testified that debtors should not be able to use Subchapter V to prolong the life of a company that cannot successfully reorganize. A primary concern of trade creditors is the inherent imbalance created by Subchapter V of the Bankruptcy Code. Subchapter V allows small businesses to avail themselves of substantially all of the benefits of a traditional Chapter 11 case through an expedited process at a minimal cost to the debtor. However, the creditors who bear the burden of those benefits are left without the most significant protections of Chapter 11 and, to protect their interests, would have to incur the same costs.
"The lack of disclosures and the reduction of available information for creditors in this subchapter is a major pain point," said Conrad Ragan, director of corporate credit risk at PepsiCo (Winston Salem, NC).
Trade creditors are the lifeblood of our economy, currently providing approximately $5.6 trillion of capital to businesses in the United States, most of which is extended on an unsecured basis.
"We do business with companies across all industries and sizes, so we have seen quite a few different types of bankruptcies, including many Subchapter V cases over the last few years," said Jeff Weber, director of credit at Uline (Pleasant Prairie, WI). "These claims can be made over three to five years, so it creates a burden for us to collect and ensure payments are being made."
ABOUT:
The National Association of Credit Management (NACM) is a national organization of business-to-business credit managers. NACM was founded in 1896 to promote good laws for sound credit, protect businesses against fraudulent debtors, improve the interchange of credit information, develop better credit practices and methods, and establish a code of ethics. NACM is a member-owned association that exists primarily to serve and support its members, including by representing business credit grantors in all industries and enhancing, promoting, and protecting the interests of business credit and financial management.
Lowenstein Sandler LLP is a national law firm with over 350 lawyers working from five offices in New York, Palo Alto, New Jersey, Utah, and Washington, D.C. They represent clients in virtually every sector of the global economy, with particular strength in the areas of technology, life sciences and investment funds.
The American Bankruptcy Institute (ABI) is the nation's largest association of bankruptcy professionals, made up of over 12,000 members in multi-disciplinary roles, including attorneys, auctioneers, bankers, judges, lenders, professors, turnaround specialists, accountants and others. ABI is committed to serving our members with high-quality conferences, comprehensive continuing education, effective legal research, and dynamic networking opportunities. Founded in 1982, ABI plays a leading role in providing congressional leaders and the general public with non-partisan reporting and analysis of bankruptcy regulations, laws and trends.
The ABI Subchapter V Task Force is committed to reviewing the implementation and administration of Subchapter V of Chapter 11 of the Bankruptcy Code. The Task Force will study and evaluate case law and statistical data under Subchapter V from February 19, 2020, through and including the present. This study will consider, among other things, how the subchapter is working in practice and whether it is achieving certain underlying objectives, such as assisting debtors and creditors in resolving the reorganization cases of small-and medium-sized businesses more effectively and efficiently, and what may be needed to improve its effectiveness. The Task Force intends to memorialize the results of its study in a written report.
Media Contact
Annacaroline Caruso, National Association of Credit Management, 1 410-423-1837, [email protected], https://nacm.org/about-nacm.html
SOURCE National Association of Credit Management
Share this article