Millionacres recently interviewed our New York partner Robert Dremluk to discuss the SBRA’s impact on real estate investors in Chapter 11 bankruptcies.
Here are some excerpts from Robert’s interview:
While America’s business community waits and watches to see if a wave of bankruptcies, foreclosures, repossessions — you name it — materializes as deferrals, forbearances, and other concessions expire, now is a good time to find out what this might mean to real estate investors.
To find out more, Millionacres turned to Robert W. Dremluk, a partner in the New York offices of Culhane Meadows. His practice focuses on real estate, bankruptcy, and financial restructuring, and here he shares some basics about the Chapter 11 changes:
What are the SBRA bankruptcy law changes, in a nutshell?
The SBRA created a new Subchapter V of Chapter 11 and eliminated a number of sections of Chapter 11 that had made a traditional reorganization case unduly burdensome and costly for a small business and individual business-people.
The biggest structural change under SBRA is the ability of a debtor to reorganize without creditor approval under what is described as a so-called modified cram-down plan.
In the past, a debtor was only able to proceed with a Chapter 11 plan if at least one class of impaired creditors voted to accept its plan. Now, subject to certain conditions, a debtor can confirm a plan so long as its disposable income is used to fund that plan over a period of three to five years
Interestingly, there is no requirement that a small business debtor remain engaged in the commercial or business activity after filing for bankruptcy, but the debtor must show that at least 50% of its pre-filing debts arose from such activities.
Overall, how are these new rules important to real estate investors?
While not specifically directed toward real estate, Subchapter V creates an opportunity for entities with smaller amounts of debt to restructure debt and reorganize their business — which will often involve a real estate component.
Real estate owners, lenders, and investors should be aware of how this streamlined bankruptcy process may affect their strategies in dealing with distressed businesses in protecting their rights or identifying investment opportunities.
One potential benefit of Subchapter V for real estate owners, lenders, and investors is that the debtor may have more funds available to pay real estate obligations, thus preserving the value of the property.
The complete article can be found here.
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The largest woman-owned national full-service business law firm in the U.S., Culhane Meadows fields over 70 partners in ten major markets across the country. Uniquely structured, the firm’s Disruptive Law® business model gives attorneys greater work-life flexibility while delivering outstanding, partner-level legal services to major corporations and emerging companies across industry sectors more efficiently and cost-effectively than conventional law firms. Clients enjoy exceptional and highly-efficient legal services provided exclusively by partner-level attorneys with significant experience and training from large law firms or in-house legal departments of respected corporations. U.S. News & World Report has named Culhane Meadows among the country’s “Best Law Firms” in its 2014 through 2020 rankings and many of the firm’s partners are regularly recognized in Chambers, Super Lawyers, Best Lawyers and Martindale-Hubbell Peer Reviews.
The foregoing content is for informational purposes only and should not be relied upon as legal advice. Federal, state, and local laws can change rapidly and, therefore, this content may become obsolete or outdated. Please consult with an attorney of your choice to ensure you obtain the most current and accurate counsel about your particular situation.