New Bankruptcy Amendments – Changes to Chapter 11 Bankruptcy
On December 27, 2020, the Consolidated Appropriation Act (“CAA”) was signed and became law. We have previously described the impact of the CAA regarding the possibility of providing PPP loans to bankruptcy Debtors, and effects generally regarding in other bankruptcy chapters. The new law also amended the Federal Bankruptcy Code that will impact chapter 11 bankruptcy. The following is a brief summary of some of the changes to the Bankruptcy Code created by the CAA and its impact on chapter 11 proceedings.
Subchapter V Chapter 11 Small Business Bankruptcy – Extend Time to Perform Non Residential Lease
The CAA amends Section 365(d) of the Bankruptcy Code and extends a Subchapter V bankruptcy Debtor’s time to perform pursuant to an unexpired lease of non residential real property. This is offered only if the Debtor experienced a material financial hardship due to Covid 19. The change gives Subchapter V debtors the option of extending the time for performance to 60 days after the filing of the case, but then to again ask for an additional 60 days after the filing of the case if the hardship continues. Deferred obligations not paid at the confirmation of the plan would be considered an administrative expense, but may be spread over the life of the plan.
Time to Assume or Reject a Lease – Chapter 11 Bankruptcy
The CAA amends section 365(d)(4) of the Bankruptcy Code to give the Debtor 210 days after the order for relief to assume an unexpired real property lease for non-residential property. This is a benefit of an additional 90 days from previous law.
Changes to Utility Creditor Treatment
The CAA amends Section 366 of the Bankruptcy Code so that utility creditors are prohibited from stopping utility service to an individual Debtor. The Debtor is required to pay such utility company for services provided in the 20 days after filing the case, and must continue to make post-petition utility payments. The key feature of this section is that the Debtor is not required to provide the utility company with adequate assurance of payments.
Changes to Bankruptcy Preference Law
The CAA amends Section 547 of the Bankruptcy Code to prohibit a Debtor or Trustee from avoiding payments that were made during the preference period for certain rental arrearages and certain supplier arrearages. To qualify, the debtor and party must have entered into the agreement before filing, and they must have amended the agreement after March 13, 2020, and the amendment must have postponed payment due under the agreement.
Many of these provisions have specific sunset provisions. If you have any questions about these issues please contact us.
