Section 1190 -- Plan Provisions
Section 1190, added by the SBRA, permits a Subchapter V plan to include provisions that are not available in traditional Chapter 11. This additional flexibility is one of the key reasons Congress created Subchapter V.
Section 1190(1): The plan may include "a provision that the debtor shall retain possession and control of all or any portion of the property of the estate."
This codifies the debtor-in-possession principle and makes clear that the small business debtor continues to operate the business during and after plan confirmation.
Mandatory Plan Contents
- Designation of classes of claims and interests
- Specification of impaired classes -- which classes are not receiving full payment or having rights modified
- Treatment of each class -- what each class of claims will receive under the plan
- Same treatment for each claim in a class -- unless the holder agrees to less favorable treatment
- Adequate means of implementation -- how the plan will be funded (business income, asset sales, new loans, etc.)
- Payment of priority claims -- administrative expenses, tax claims, and domestic support obligations must be paid in full (with limited exceptions)
No Disclosure Statement Required
In traditional Chapter 11, the debtor must prepare and obtain court approval of a disclosure statement before soliciting votes. This adds months and thousands of dollars in legal fees. Subchapter V eliminates this requirement entirely.
Under Section 1181(b), the disclosure statement requirements of Section 1125 do not apply. The debtor solicits votes based on the plan itself. The court may order additional information to be provided to creditors, but there is no formal disclosure statement process.
Cost savings: Eliminating the disclosure statement saves an estimated $5,000 to $20,000 in legal fees and 2-4 months of time for most small business cases.
Key Differences from Traditional Chapter 11
| Feature | Traditional Ch. 11 | Subchapter V |
|---|---|---|
| Disclosure statement | Required | Not required |
| Absolute priority rule | Applies | Does not apply |
| Who files plan | Anyone (after exclusivity expires) | Only the debtor |
| Plan deadline | None (after exclusivity) | 90 days after order for relief |
| U.S. Trustee quarterly fees | Required | Not required |
| Creditor committee | Presumed | Not appointed unless court orders |
See also: Subchapter V vs. traditional Chapter 11 comparison
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