Four affiliated companies filed petitions for relief under Chapter 11 of the bankruptcy code and elected to proceed under Subchapter V.

One of the companies, Premier Capital Investment Company, LLC, amended its petition to proceed not as a Subchapter V debtor, but as a single asset real estate (“SARE”) debtor

The four debtors shared common ownership sufficient to render them affiliates as defined under 11 U.S.C. §101(2)(B).

The three other affiliate debtors had total aggregate debt less than the $7,500,000 maximum and otherwise qualified for eligibility under Subchapter V (11 U.S.C. § 101(51D).

But if the debts of Premier Capital, the SARE affiliate, were included in the aggregate debt calculation, each affiliate would be deemed to exceed the $7,500,000 maximum aggregate debt.

To meet the “small business” designation under 11 U.S.C. § 101(51D), a debtor must meet both subparts (A) and (B).  The debtors argued that because subpart (A) excludes single asset real estate debtors from the definition of small business debtors, the debt of Premier Capital should not count toward the aggregate debt.  But subpart (B) limits the definition of subpart (A) to exclude any debtor whose debt, plus the debt of its affiliates, exceeds $7,500,000.  The court ruled that Premier Capital, even though excluded from SBRA treatment under 11 U.S.C. § 101(51D)(A), was nevertheless an affiliate for the purposes of aggregating the debt among all four affiliates.  This disqualified the otherwise qualifying affiliates from proceeding as small business debtors under 11 U.S.C. § 101(51D).

305 Petroleum[1] furthers our understanding of 11 U.S.C. 101(51D) and reminds us of the significance of the $7,500,000 debt limit for the debtor and its affiliates for electing to proceed under Subchapter V.


[1] In re 305 Petroleum, Inc., N.D Miss. (10/27/2020), 1010 Bankr. LEXIS 3008, 2020 WL 6363718