Subchapter V - Context
Subchapter V was added to Chapter 11 by the Small Business Reorganization Act of 2019 (SBRA), effective February 2020. It provides a streamlined reorganization path for small business debtors with debts under approximately $3 million (inflation-adjusted; temporarily raised to $7.5 million during 2020-2024). A Subchapter V trustee is appointed in every case under Section 1183 to oversee plan formulation and monitor plan performance.
Attorney fee dynamics in Sub V cases differ from standard Chapter 11 in several important ways.
Two Fee Streams: Debtor's Counsel and Sub V Trustee
In a Sub V case, two compensation streams are present:
- Debtor's counsel compensation. Governed by Section 330 (professional compensation) and subject to Section 329(b) reasonableness review. Rule 2016(b) disclosure required.
- Subchapter V trustee compensation. Governed by Section 1195 and implemented through Section 330. Subject to court approval on a fee application.
Section 329(b) applies to debtor's counsel - not the Sub V trustee. However, if the Sub V trustee is an attorney who provided pre-petition services or any services "in connection with" the case outside the trustee role, those payments are within Section 329's scope.
Reasonableness in the Sub V Context
Sub V cases are intended to be streamlined. Attorney fees should reflect that streamlining. Typical Sub V features that should influence fee reasonableness:
- No requirement to solicit creditor acceptance in a 1191(b) cramdown plan
- Sub V trustee performs some oversight functions that would otherwise fall on debtor's counsel
- Simplified plan confirmation requirements
- Reduced disclosure statement burden
- No separate committee of unsecured creditors in most cases
Fees that reflect full Chapter 11 effort on a Sub V case that benefited from the streamlined framework may exceed reasonable value under Section 329(b).
Section 1195 - Sub V Trustee Compensation
11 U.S.C. Section 1195: "The trustee appointed under this subchapter shall be compensated for the trustee's services under section 330 of this title."
The Sub V trustee files fee applications under Section 330, typically paid from the estate. Trustee fees are reviewed for reasonableness on the same Section 330(a)(3) factors applied to other professional compensation.
The Corporate Debtor Standing Problem in Sub V
Many Sub V cases are filed by small corporations (LLCs, S-corps, small partnerships). Under Rowland v. California Men's Colony, 506 U.S. 194 (1993), corporations cannot appear pro se and must be represented by licensed counsel.
This creates a specific problem for Sub V fee review:
- If debtor's counsel has withdrawn, the corporate debtor cannot file its own Section 329(b) motion.
- The Sub V trustee can move under Rule 2017, but may be reluctant if the attorney's conduct is tangential to plan confirmation.
- The U.S. Trustee has Section 307 standing and Rule 2017(b) authority to move.
- The court has sua sponte authority under Rule 2017.
In Sub V cases where debtor's counsel has withdrawn and the corporate debtor cannot self-file, the practical paths to Section 329(b) relief are (1) U.S. Trustee motion, (2) court sua sponte, (3) successor counsel after retention, or (4) Sub V trustee motion if within scope.
Post-Confirmation Fee Review in Sub V
Sub V plans confirmed under 1191(a) (consensual) or 1191(b) (cramdown) remain subject to Section 329(b) review for fees paid in connection with the case. A confirmed plan does not foreclose fee review. Two scenarios arise:
- 1191(a) consensual plan: Discharge at confirmation. Fee review may still proceed if the fees paid exceeded the reasonable value of services.
- 1191(b) cramdown plan: Discharge at plan completion (3-5 years typically). Fee review can proceed during the plan period, particularly if the Sub V trustee identifies issues in the ongoing plan monitoring.
Plan Modification and Fee Review
Under Section 1193, a Sub V plan may be modified before substantial consummation. A 1193(c) plan modification may be paired with a fee review where the original plan was procedurally irregular. This is a developing area with limited appellate case law; practitioners should watch for emerging Eighth and Tenth Circuit guidance.