Looking to expedite bankruptcy procedures for small businesses, a government panel proposed new rules Wednesday that would resolve most cases within 45 days.
Industry officials endorsed the Bankruptcy Review Commission's plan, saying it would keep small companies from depleting their assets by lingering in Chapter 11 bankruptcy protection for years.
"This is the right direction," said Joseph A. Giampapa, lead attorney for Banc One Corp. and a member of the panel. "The delays of bankruptcy cost creditors money."
Chapter 11 of the federal Bankruptcy Code shields firms from their debts as they reorganize into profitable companies. Businesses that fail to reorganize are liquidated.
The proposal would apply to companies that reported less than $10 million in gross income on their most recent tax returns.
After declaring bankruptcy, the plan would require a debtor to:
Establish separate bank accounts within three days for tax, insurance, and payroll payments.
Release financial statements within 15 days.
Meet with a court-appointed bankruptcy specialist within 20 days to determine if the business is economically viable.
Hold a status conference with the creditors, judge, and court-appointed expert within 30 days.
File a reorganization plan within 45 days.
At Wednesday's meeting, the commission's members debated the $10 million threshold. Some recommended lowering it to $2 million, or basing it on employment levels or revenues. The staff said it would incorporate the suggestions into a final draft due Feb. 20.
The commission, created by Congress in 1994 to review bankruptcy laws, includes bankers, judges, and consumer lawyers. The panel must report back to lawmakers in October.