Chapter 11 for Small Businesses vs Large Corporations

Chapter 11 bankruptcy can be utilized by both small businesses and large corporations, but there are significant differences in how the process is applied to each:

Key Differences

1. Subchapter V: For small businesses, Subchapter V of Chapter 11 provides a streamlined and more cost-effective process. Eligibility is limited to debtors engaged in commercial activities with total noncontingent, liquidated debts (both secured and unsecured) of no more than $7,500,000, and at least 50% of the debt must arise from business activities. 257
2. Simplified Procedures: Subchapter V eliminates the need for a disclosure statement and allows for a more straightforward plan of reorganization. The debtor must submit a concise history of business operations, a liquidation analysis, and projections showing how they will keep up with plan payments. 57
3. Timeline: Small businesses under Subchapter V have shorter deadlines, including a 90-day window to submit a plan of reorganization and a status conference within 60 days of filing. 57
4. Trustee Role: In Subchapter V, a trustee is appointed but does not control the business. Instead, the debtor remains in possession and control, with the trustee serving to facilitate the process and ensure compliance. 57
5. Creditor Approval: Unlike traditional Chapter 11, where creditor approval is often required, Subchapter V allows the court to confirm a plan over creditor objections if it is deemed fair and equitable. 57
6. Cost: The cost of filing under Subchapter V is significantly lower compared to traditional Chapter 11, making it more accessible to small businesses. 27

Large Corporations

1. Traditional Chapter 11: Large corporations typically file under traditional Chapter 11, which involves more complex procedures, including the preparation of a detailed disclosure statement and a plan of reorganization that must be approved by creditors. 89
2. Higher Costs: Traditional Chapter 11 proceedings are more expensive due to the need for extensive legal and professional services. 79
3. Creditor Involvement: Large corporations often have multiple classes of creditors, requiring more extensive negotiations and approvals for the reorganization plan. 89
4. Longer Timelines: The process for large corporations can be lengthy, involving multiple hearings and negotiations with creditors. 89