A top Small Business Administration official is asking House leaders to drop a proposed requirement that companies with less than $5 million of debt use an expedited bankruptcy process.
Jere W. Glover, SBA's chief counsel for advocacy, said the finances of some small businesses are so complex that they would be unable to meet the strict filing requirements included in the expedited procedure. That could result in these businesses' being prematurely liquidated, he wrote in a letter last week to House leaders.
"The proposed Bankruptcy Reform Act of 1998 would make fundamental, expansive, and potentially detrimental changes to entrepreneurship by altering bankruptcy protection for small businesses seeking to reorganize," Mr. Glover wrote.
The small-business provisions are included in a broader bankruptcy reform bill introduced by Rep. George W. Gekas, R-Pa., and approved last week by the House Judiciary Committee's commercial and administrative law subcommittee.
Mr. Glover complained that the expedited procedures would apply to 85% of all business bankruptcies. He also questioned the need for small- business changes, noting that business bankruptcies comprise less than 1% of Chapter 11 and Chapter 13 filings.
Philip S. Corwin, a principal at Federal Legislative Associates who represents the American Bankers Association, said he was surprised by the SBA official's objections. Some small businesses now languish in bankruptcy for years, he said, because lenders are not owed enough to make it worthwhile to fund a creditors committee.
The legislation would eliminate this problem by requiring bankrupt companies to reorganize promptly or be liquidated, he said. "SBA is missing the potential of the small-business section," Mr. Corwin said.
The bill is supported by the National Federation of Independent Businesses. "It is important to continue the safety net and allow for the entrepreneurial spirit," said Nelson Litterst, the group's senior manager for legislative affairs. "But at the same time you cannot let the abuses continue."
Separately, Senate Judiciary Committee Chairman Orrin Hatch postponed a hearing set for today on consumer bankruptcy reform. A committee official said the hearing will be rescheduled soon.