The introduction of Subchapter V in 2020 created a new avenue for small business debtors to more efficiently and effectively obtain relief under Chapter 11 of the Bankruptcy Code. At the opposite end of the Chapter 11 spectrum, large-scale debtors and their professionals have used prepackaged Chapter 11 cases (Prepacks) for decades to restructure their balance sheet without the time, expense and uncertainty of a lengthy court process. For one small business in Hollywood, Florida, these worlds just collided. The result? The first known Prepack Subchapter V plan was recently confirmed by the Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division.
BPI Sports, LLC develops and markets nutrition and dietary supplement products. Like many businesses, it struggled through the disruption of the pandemic. BPI’s ownership disagreed about the path forward and were facing a stalemate. Meanwhile, BPI ran up approximately $6 million in trade debt to its largest supplier High-Tech Pharmaceuticals, Inc. (HTP), which comprised over 70% of its debt.
BPI’s counsel, Eyal Berger of Akerman, LLP, initially expected to liquidate the company using an assignment for the benefit of creditors, which is a state-law insolvency process. But first, he reached out to HTP to see if some other deal could be made. Due to internal business reasons, HTP was only able to participate if the alternative was accomplished in about a month. Faced with this deadline, BPI and HTP negotiated a bridge loan to support short-term operations and a Subchapter V plan. Given the time constraints, a Prepack was the only possible route through Chapter 11.