Marla S. Benedek and Mark E. Felger discuss the role of mediation in bankruptcy cases filed under subchapter V of chapter 11 of the Bankruptcy Code, in the American Bankruptcy Institute Journal. Subchapter V was established in an effort to make chapter 11 more efficient and economically feasible for small business debtors, allow small business debtors to successfully reorganize while retaining control of their businesses, and reduce unnecessary and expensive procedural burdens in chapter 11. Subchapter V has become increasingly favored for chapter 11 reorganization of small businesses, but certain unique features of subchapter V complicate mediation — a favored tool for resolving chapter 11 cases. Various changes under subchapter V include the elimination of the unsecured creditors’ committee, the elimination of the requirement to file a separate disclosure statement accompanying the debtor’s plan, the elimination of the absolute-priority rule, and the debtor’s ability to confirm a plan without any consenting creditors. Subchapter V provides for the appointment of a subchapter V trustee, who is tasked with helping the debtor achieve confirmation of a chapter 11 plan.

These changes streamline and accelerate chapter 11 cases for small business debtors and weaken the rights, powers, and protections of creditors in favor of small debtors, shifting the balance of power in negotiations between debtors and creditors. Having a qualified subchapter V trustee serve as a mediator and facilitator of negotiations among the parties can promote the aims of subchapter V by reducing costs for the debtor and easing confirmation of a chapter 11 plan. However, all parties must carefully assess practical risks and confidentiality concerns before engaging subchapter V trustees in negotiations, ensuring that all parties’ interests are adequately protected.

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