| A small business debtor who elects to proceed under subchapter V of chapter 11 has the same rights and powers to sell property under 11 U.S.C. § 363 as a trustee or a debtor in possession in a larger case. But it remains to be seen whether subchapter V will be used by debtors who intend to sell substantially all of their assets in a § 363 sale, or to confirm liquidating plans. A key benefit of subchapter V is that it allows a small business owner to retain its equity by eliminating the absolute priority rule, or a requirement that the owner contribute new value to retain its equity. Therefore, it seems more likely that subchapter V cases will
be used by small business owners who prefer to reorganize with a three-to-five-year payment plan as an alternative to liquidation.
While it is too early to know for sure, sales in subchapter V cases will more likely be used by debtors to “downsize,” rather than liquidate, and therefore will involve discrete assets that the debtor finds burdensome or unnecessary. In this article, we will discuss the provisions of subchapter V that discourage all-asset sales and promote reorganization, the types of sales that are likely to occur in subchapter V cases, and issues that may arise from these sales.
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