The Trump administration is blocking companies in bankruptcy from receiving stimulus funds Congress has authorized to help small businesses survive the coronavirus pandemic, putting them at risk of closing permanently, the Wall Street Journal reported. The Small Business Administration, which administers the Paycheck Protection Program, says on the program’s loan applications that companies in bankruptcy aren’t eligible for the emergency funding. That has caused banks to deny requests from such applicants. But nothing in the CARES Act, the law authorizing the PPP, indicates Congress meant to withhold stimulus funds from troubled companies that have turned to chapter 11 bankruptcy to save their business, legal experts, affected companies and at least two federal judges say. A handful of these companies as well as three Catholic archdioceses have sued the SBA over the issue in recent weeks. A Texas judge on Friday ordered a local bank to waive the SBA’s bankruptcy restriction when considering an ambulance company’s request for a $2.6 million PPP loan. Bankruptcy Judge David R. Jones said that the PPP isn’t a traditional loan program but rather “a support program” for businesses during an unprecedented crisis. “This can’t be what Congress intended,” Judge Jones said during a telephone hearing. Small Business Administration chief Jovita Carranza, in consultation with Treasury Secretary Steven Mnuchin, determined that providing PPP loans to companies in bankruptcy “would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans,” the SBA said Friday. Read more.(Subscription required.)
In related news, the Archdiocese of Santa Fe (N.M.) has filed a complaint against the U.S. Small Business Administration, saying that the federal agency is illegally blocking it from applying for a low-interest loan from a program aimed at helping small businesses impacted by the novel coronavirus because the archdiocese is involved in a bankruptcy proceeding, the Santa Fe New Mexican reported. The complaint was filed on Tuesday in the archdiocese’s pending chapter 11 bankruptcy case in U.S. Bankruptcy Court. In it, the Catholic organization says the federal government specifically ruled nonprofit entities and those in bankruptcy are not ineligible to receive 1 percent interest loans from the Paycheck Protection Program, which is part of the more than $2 trillion federal relief package being dispersed to help steady the economy during the pandemic. But the archdiocese says that the form applicants must complete says applications from entities involved in bankruptcy proceedings will not be approved. The archdiocese is asking the court to rule that the Small Business Administration overstepped its authority when it determined entities going through bankruptcy weren’t eligible for the money and change the part of the form that keeps them from applying. The petition acknowledges the Small Business Administration announced April 16 that the $349 billion set aside for the Paycheck Protection Program was already exhausted. But it says “upon information and belief, Congress has reached a deal to allocate additional funds” to the program and the archdiocese wants to be able to apply for them. Read more.
