The Senate Judiciary Committee has approved bipartisan legislation that would modify the Chapter 11 bankruptcy process to help small companies remain in business and preserve jobs.

The bill was introduced last month by Senators Sheldon Whitehouse, D-R.I., and Charles Grassley, R-Iowa, and was passed by the Judiciary Committee on Thursday.

“Chapter 11 was designed for large publicly-traded corporations and does not work for many small businesses,” Whitehouse said in a statement. “Our bill is a first step in improving the process for small companies and would implement some important changes to make it more flexible.  Providing viable small companies with a better reorganization process will help businesses maintain jobs.”

The Small Business Reorganization Efficiency and Clarity Act would give debtors and courts 45 additional days (for a total of 90) to confirm their bankruptcy plans.  While the current 45-day deadline was intended to expedite small business cases, it has proven to be an insufficient amount of time for many debtors and courts, according to the bill’s authors. The bill would also eliminate an ambiguous “catch all” reporting requirement that results in unnecessary filings and wasted attorney hours.

In addition, the bill would allow small business debtors to retain pre-filing counsel and other professionals even if such professionals have small claims against the estate.  According to spokespeople for the bill’s authors, it doesn’t make sense to disqualify a lawyer familiar with a company from representing it just because the lawyer has a small claim.

The legislation would also direct the Government Accountability Office and the Administrative Office of U.S. Courts to report information on small business cases and to make recommendations for further reforms.

“Judges, attorneys and businesses raised concerns,” said Grassley.  “This bill responds with good, common sense changes to help small businesses in bankruptcy. It will also help us, the Congress, in determining whether future changes are needed. The bill is a step in the right direction as we continue work going forward.”

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