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Florida is home to 3.1 million small businesses - 99.8% of all Florida businesses, according to the U.S. Small Business Administration.
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Soneet Kapila, President, American Bankruptcy Institute
Economic Backbone: Financial Marketplace
Streamlining Reorganizations
A new bankruptcy filing option has eased the Chapter 11 process for small businesses. A South Florida insolvency expert wants Congress to keep it that way.
Fort Lauderdale forensic accountant and CPA Soneet Kapila usually makes the news for untangling the financial mess left behind in busted Ponzi schemes and other frauds. This year, as president of the Virginia-based American Bankruptcy Institute, he’s been busy asking Congress to make it easier for failing small businesses to salvage their operations.
His work is of particular importance in Florida. The state is home to 3.1 million small businesses — 99.8% of all Florida businesses, according to the U.S. Small Business Administration. Those businesses employ 3.6 million Floridians, or 39.7% of employees in the state, the SBA says. While critical to the economy, small businesses are less resilient than larger businesses when costs rise. They also are more vulnerable to interest rate increases and are less able to access capital.
When most small businesses fail, the owners simply close shop and walk away. The minority that owe creditors sometimes file for bankruptcy liquidation because the cost of retaining professional help and court proceedings is too high for them to reorganize under Chapter 11 of the bankruptcy code.
To address that, Congress in 2019 created Subchapter V to make reorganization less burdensome for small businesses carrying no more than $2.7 million in debt — specifically, aggregate noncontingent, liquidated debt. The change took effect in 2020 and Congress, almost immediately as part of pandemic relief to keep businesses operating and people employed, lifted the limit to $7.5 million. It subsequently was extended through June 2024. After then, it will fall to $3 million, making many businesses ineligible for reorganization.
The $7.5-million level was a success, Kapila and the American Bankruptcy Institute said in a letter to Congressional leaders in January. Professionals and judges interviewed by an institute task force called Subchapter V the “most effective and useful” bankruptcy legislation since the bankruptcy code was enacted in 1978. The institute asked that the $7.5-million level be made permanent.
Since the creation of Subchapter V, nearly 30% of all Chapter 11 cases have been brought under it and a quarter of those debtors wouldn’t have qualified for relief back in the days of the lower, $2.7-million cap, according to the bankruptcy institute. Subchapter V “is imperative for this category of debtors that cannot reorganize in a regular Chapter 11 case and would otherwise liquidate and close, thus harming owners, employees, and creditors,” Kapila wrote the congressional leaders.
KapilaMukamal, owned by Kapila and business partner Barry Mukamal, has 18 professionals. Fraud, receivership and bankruptcy cases it handles stretch across the state and nation. Recent cases include the $40-million fraud for which hedge fund leader and race car enthusiast Andrew Franzone was arrested in Fort Lauderdale in 2021 and the alleged $112-million Ponzi scheme uncovered last year at Coral Springs-based Royal Bengal Logistics moving company.
