Small Business Reorganization and the SABRE Proposals

I. INTRODUCTION A. The World of Small Business Reorganization1 Extensive anecdotal evidence2 and the limited empirical data available3 suggest that the majority of chapter 11 business IMAGE FORMULA8 reorganization cases are "small business" cases, however that phrase might be defined.4 IMAGE FORMULA10 Many bankruptcy experts suspect that the substantial costs and hurdles of reorganizing under chapter 11 are especially burdensome for small businesses and may significantly impair small businesses' ability to reorganize and survives.5 Again, the IMAGE FORMULA12IMAGE FORMULA13 limited empirical data available seem to support this notion.6 It should not be surprising, then, that bankruptcy practitioners, scholars, and judges agonize over the treatment of small businesses in reorganization;7 conferences are organized to consider the particular problems of financially distressed small businesses;8 Congress singled out small businesses for attention in the 1994 Bankruptcy Code amendments;9 and the National Bankruptcy Review Commission recommended reforms applicable to small business reorganization cases.10 IMAGE FORMULA15 Much of the debate concerning the treatment of small businesses in bankruptcy swirls around the decision embraced by the drafters of the 1978 Bankruptcy Code to unite diverse business relief chapters into the current chapter 11.11 As a consequence of this one-size-fits-all approach, small, closely-held businesses face the same complicated reorganization processes as large, publicly held businesses.12 Although few would openly advocate a return to the type of strategic behavior that characterized the superceded Bankruptcy Act's segregation of "corporate reorganizations" and "arrangements" under former chapters X and XI,13 many would IMAGE FORMULA17 advocate reforms that modify the one-size-fits-all treatment of small businesses.14 Reform proposals range from (i) doing nothing and allowing chapter 11's elegant flexibility to accommodate the needs of small businesses in reorganization,15 (ii) encouraging bankruptcy courts to accommodate small business cases through specialized case management procedures, and amend the Bankruptcy Rules and Bankruptcy Code in minor ways if necessary to facilitate these procedures,16 (iii) creating a separate reorganization chapter for IMAGE FORMULA19 small businesses, or otherwise amending the Bankruptcy Code in significant ways to make chapter 11 easier for small businesses,17 and (iv) amending the Bankruptcy Code to make chapter 11 harder for small businesses in order to force the liquidation of businesses that are not viable.18 B. SABRE: The Select Advisory Committee on Business Reorganization In March 2000, Mike Sigal, Chair of the American Bar Association Business Bankruptcy Committee, appointed Gerald K. Smith to chair a special committee of the Section of Business Law, Business Bankruptcy Committee, to be known as the Select Advisory Committee on Business Reorganization ("SABRE").19 SABRE's mission is to consider the perception that chapter 11 business reorganizations take too long and cost too much and, if appropriate, to develop legislative solutions to reduce the time and cost of business reorganizations.20 Although SABRE was IMAGE FORMULA23 organized to examine the time and cost of reorganization under chapter 11 generally, it has carefully considered how its proposals might affect businesses of varying sizes and types, including small businesses.21 In March 2001, following extensive investigation and analysis, and consultation with the members of the Business Bankruptcy Committee Council and other bankruptcy experts, SABRE issued its First Report. …