NPCA Newsletter: When Bankruptcy Isn’t the End: How Subchapter V Gave One Founder a Second Wind
- NP Capital Advisors Team
- 7 hours ago
- 8 min read
Newsletter article summary: When facing an escalating lawsuit from a soured partnership, True Made Foods founder used Subchapter V to restructure rather than shut down. His unsecured debt was reduced to a fraction of its original balance, repaid over three years. The company emerged debt-manageable, operationally intact, and positioned to grow again, illustrating how bankruptcy, handled strategically, can strengthen rather than end a business.
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When Bankruptcy Isn’t the End: How Subchapter V Gave One Founder a Second Wind
Say the word “bankruptcy” to most founders, and you'll watch the color drain from their faces. One conjures up thoughts of doors closing, employees let go, and years of work erased. But for Abe Kamarck, the founder of True Made Foods, it turned out to be something closer to a reset button.
This article will go over how founders can navigate bankruptcy to their benefit, coming out the other side cleaner and with a business intact.
How Abe Ended Up in Bankruptcy Court
Abe’s path to founding a ketchup company started in a helicopter cockpit. He spent eight years as a Navy pilot working in counterterrorism, picked up an MBA from London Business School, and rode out the 2008 financial crisis running a plastics factory turnaround in Bulgaria. From there, it was emerging-markets consulting in Doha, then Kampala, then a stint building a social-impact coffee brand in Africa. When that program’s funding dried up, Abe created True Made Foods. It featured no-sugar-added ketchup made with real vegetables and fruit and expanded into barbecue sauces and honey mustard, landing shelf space in Whole Foods, Walmart, Sprouts, H-E-B, and Stop & Shop.
The business itself never stopped being viable. What nearly took it down was a partnership gone wrong. In 2020, a large candy company offered True Made Foods a working capital line and logistics support in exchange for warrants, a lifeline that helped the company more than double sales that year. Then, without warning, the partner froze the account, seized the company’s inventory out of a shared warehouse, and walked away. True Made Foods spent years clawing back to stability. Just as it found its footing, the same partner resurfaced with a lawsuit over the disputed balance. Discovery alone was going to cost six figures regardless of a win or loss. Thus, a fundamentally healthy, growing company got forced into bankruptcy court, showing that for small businesses, litigation can often be too expensive to fight.
Navigating Bankruptcy: What a Company Actually Needs to Do
When a company is facing serious debt or legal exposure, there are several distinct routes, each with very different costs and outcomes:
Chapter 7: an orderly wind-down where assets are sold and proceeds distributed by priority. It ends the business.
An Article 9 sale: a friendly secured creditor takes control of the assets and effectively restarts the company under new ownership, leaving other creditors behind.
An ABC (assignment for the benefit of creditors): an asset sale outside of court, which can work but requires proving the sale price was the best available, a process that alone can run $50,000 or more.
Chapter 11: a full restructuring, but an expensive one. Traditional Chapter 11 can easily run past $100,000 in legal fees, hands significant power to a creditors' committee, and can wipe out existing equity entirely.
Subchapter V: a streamlined version of Chapter 11, purpose-built for small businesses. Company equity can stay intact.
Subchapter V is the one most founders have never heard of, and it's the one that let True Made Foods keep operating.
Why Subchapter V Is Often the Right Choice for Small Businesses
Congress created Subchapter V specifically so small businesses wouldn’t have to choose between an unaffordable restructuring and simply shutting down. The debt ceiling has moved around; it currently sits at roughly $3 million, though it was temporarily raised as high as $7.5 million during COVID, and there’s ongoing discussion about making a higher threshold permanent.
For companies under that ceiling, the differences from a standard Chapter 11 are significant:
Existing ownership stays in place. In a traditional Chapter 11, equity holders can be wiped out if secured creditors aren’t paid in full. Under Subchapter V, the founder keeps their equity.
No creditor committee has unilateral voting power. Regular Chapter 11 gives creditors a formal committee and a vote that can stall or sink a plan. In Subchapter V, even if every creditor votes against the plan, the court can still approve it if the plan is fair and feasible.
Debts get paid in priority order. Taxes and payroll come first, followed by critical vendors needed to keep operating, then secured debt, then unsecured debt and accounts payable, which is typically the tranche that gets reduced most.
The cost difference is dramatic. A Subchapter V filing, including legal fees and a trustee, typically runs $30,000-$60,000 all-in. A standard Chapter 11 routinely exceeds $100,000 before anything is resolved.
Navigating Creditors and a Court-Approved Plan
Not every creditor behaves the same way, and that difference shapes which path makes sense. A rational creditor weighs the cost of pursuing you against what they'd actually recover; most won’t spend the time and money to fight over a small business that genuinely can’t pay. But an irrational or well-funded creditor, especially one acting out of spite, can slow the process down with objections regardless of the odds. Mapping out who you owe, how much leverage they have, and how they’re likely to react is groundwork that has to happen before you choose a path.
Critically, at the center of any Chapter 11 or Subchapter V filing is a restructuring plan: a conservative financial model showing what the business can realistically pay, with debts sorted into priority tranches and a repayment timeline of typically three to five years. The court sets a hearing date to review it, and creditors get a chance to challenge it. This is not the moment to pitch an aggressive growth story; a plan built on conservative, defensible cash flow assumptions is far more likely to survive a court date intact.
True Made Foods was profitable, if even just barely, going into the bankruptcy process, which helped prove to the court that the company deserved to keep operating. It emerged profitable, and this profitability piece – or at least having a manageable and minimal cash burn – was helpful.
What Resolution Can Look Like
True Made Foods emerged from the process at the end of May free from lawsuits and creditors looming over decisions. Their liability is now fundamentally restructured: its unsecured debt was reduced to a fraction of its original balance, paid out over three years in six-month installments. The debt didn’t vanish, but monthly obligations became manageable, and the company kept its shelves stocked and its team intact the entire time.
Their cap table and founder equity stayed intact as well. Most people assume that equity holders get wiped out in a Chapter 11, which is not always true. A Subchapter V makes it much easier to keep equity holders whole, which is an attractive point for investors who may want to fund the legal costs for one of their companies to go through a Subchapter V process.
True Made Foods maintained good relationships with all their operating partners (vendors and customers). Because Subchapter V allows management to keep operating the company and pay "class four" (critical) creditors, the bankruptcy process was essentially invisible to their key vendors and customers.
Subchapter V is designed to produce an outcome in which the business survives and is relieved of debt it realistically couldn’t service. This usually makes it free to redo its balance sheet, rebuild credibility with vendors and investors, and start growing again from a profitable foundation.
For any founder facing distress, the instinct to avoid the word “bankruptcy” is understandable when, in fact, approaching it in the right way could save your business. Abe walked out the other side leaner, cleaner, and growing again, which is an outcome available to more founders than most of them realize.
If you want help navigating bankruptcy and the Subchapter V process, NP Capital Advisors is here to help.
Deal Highlights
NP Capital is advising an innovative plastic-free oral care brand on a strategic sale process. The engagement aligns with the brand's mission to eliminate single-use plastic from the bathroom through clean, sustainable toothpaste tablets, using a science-backed hydroxyapatite formula to whiten teeth, strengthen enamel, and freshen breath. This process positions the brand's subscription-driven, media-recognized portfolio for continued growth and wider reach under new ownership in the competitive clean beauty and personal care category.
Industry Headlines
Uber in Advanced Talks on Delivery Hero Takeover, Bloomberg News Reports
A transaction would likely value Delivery Hero at well above its recent trading price of around €36 ($41.23) per share, according to Bloomberg.
Shares of Delivery Hero rose more than 5% to €38.93, while Uber was down nearly 3%.
The food-delivery company said in May it had received a €33 offer from Uber. Reuters had reported that the U.S. company had raised its stake in Delivery Hero to nearly 37% from 25% by acquiring shares from fellow shareholder Aspex Management.
Shein Is Said to Target Up to $3 Billion Hong Kong IPO by August
Shein Global Holdings Ltd. is seeking to list in Hong Kong as soon as in August after securing approval from China’s securities regulator.
The company may seek to raise about $2 billion to $3 billion in the initial public offering, depending on the valuation and feedback from investors.
Shein received approval from the China Securities Regulatory Commission for its Hong Kong IPO on Friday, paving the way for the company to make its debut on public markets after two failed attempts in the US and London.
Levi Strauss Raises Fiscal-Year Guidance Again as Expanded Offerings, DTC Shift Pay Off
Levi Strauss raised its full-year guidance after posting higher second-quarter sales, now expecting revenue growth of 7% to 7.5%.
The company reported a fiscal second-quarter profit of $87.3 million, up from $67 million a year earlier.
Under Chief Executive Michelle Gass, Levi’s has expanded its offerings of tops, dresses and non-denim bottoms while focusing on direct sales.
7-Eleven Owner Drops Go-It-Alone Strategy With SoftBank Deal
Seven & i Holdings Co. is considering selling a stake to SoftBank Corp. and PayPay Corp. in a move that would allow the companies to capture more of consumers' wallets and help Seven & i spur faster profit growth.
The potential deal would mark an end to Seven & i's long-held policy of staying fiercely independent and could lead to the company achieving greater economies of scale in areas such as payment infrastructure and artificial intelligence.
SoftBank, PayPay, and Sumitomo Mitsui are in negotiations and aim to sign a deal this summer, which could also provide Seven & i with deep-pocketed partners to help fend off activist shareholders or unwanted suitors.
Consumer Sentiment Improves in June as Gasoline Prices Moderate
Consumer sentiment improved in June as gasoline prices moderated and Iran conflict worries eased.
Long-run inflation expectations fell to 3.3% in June from 3.9% last month, according to the University of Michigan’s survey.
Consumer spending has held up relatively well, despite sentiment worsening in recent months.
About NP Capital Advisors
NP Capital Advisors offers next-generation Mergers & Acquisitions advisory, Restructuring & Liability Management, and Financial advisory. The firm was founded by a team of experienced entrepreneurs, bankers, and attorneys who have built, operated, and sold successful businesses. With a performance-driven fee structure and a track record of delivering exceptional results, NP Capital Advisors is dedicated to helping founder-led and emerging growth businesses maximize value and overcome challenges.
This newsletter is for informational purposes only and does not constitute financial, legal, or investment advice.
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