Document Type

Article

Publication Date

8-2024

Abstract

America has long styled itself as a place where entrepreneurs can dream big and—if things go well—make it big too. But when small businesses fail, does the American bankruptcy system provide a real opportunity to preserve value and try again? For decades, bankruptcy professionals, judges, and lawmakers have tried various approaches to small business bankruptcies, none of which seemed to work particularly well. But in 2019, Congress passed the Small Business Reorganization Act (the “SBRA”), one of the most significant amendments to the Bankruptcy Code in a generation. As practitioners, scholars, and judges work out the contours of the rules, we shine new light on one strategy for creditors and debtors that has gone unexplored so far: the small business prepack. Prepackaged bankruptcies, or “prepacks,” are an aggressive and controversial approach for chapter 11 debtors that prioritize speed and certainty. Prepack debtors develop their reorganization plan, solicit votes, and prepare all necessary filings before entering court. At their fastest, some debtors have managed to get in and out of bankruptcy court in less than twenty-four hours. Filing a prepack reduces costs, lowers unpredictability, and keeps the debtor out of the public eye. While stringent notice, disclosure, and voting requirements make prepack bankruptcies challenging and contentious under regular chapter 11, we argue that subchapter V provides a more hospitable procedural outlet for the strategy. While the SBRA did not address prepacks expressly, the SBRA facilitates prepacks for small businesses, paving the way for bankruptcy’s fastest cases both theoretically and practically. We walk through what a small business prepack would look like and analyze which small businesses would benefit most from this strategy. We conclude with several proposals to refine subchapter V to make small business prepacks more predictable, efficient, and fair. Not all bankruptcy cases can be fast, but the SBRA may now make it easier for some small businesses to reorganize at rocket speed.

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