Bankruptcy Developments in Subchapter V Eligibility Requirements

Small business debtors must meet certain eligibility requirements to proceed filing for Subchapter V under Chapter 11 of the Bankruptcy Code. On April 12, 2022, Judge Ernest Robles ruled that debtors cannot be an "affiliate of one or more entities that are 'issuers,'" as defined in the Securities Exchange Act of 1934. The decision made by Judge Ernest Robles in In re Phenomenon Marketing & Entertainment (PME), No. 2:22-bk-10132-ER, highlights what appears to be a substantial drafting error in the provisions of Subchapter V that may cause certain small business debtors to be ineligible to proceed under Subchapter V than may have been intended.

In this Reuters article authored by Loeb & Loeb Restructuring & Bankruptcy partners Schuyler Carroll and Bethany Simmons and associate Noah Weingarten, the writers examine the PME case and decision, including how the drafting errors in the provision of Subchapter V may cause small business debtors to be ineligible and why parties should carefully review the debtor’s organizational structure to determine eligibility and preclude any collateral liability that might flow from a determination that an affiliate issues securities.

Click here to read the full article on the Reuters website.