A bankruptcy judge backed USA Gymnastics in its lawsuit to get one of the small business loans created by Congress to cover payroll costs during the coronavirus pandemic, saying that the embattled national body is likely to succeed in defeating the federal government’s rule excluding organizations in bankruptcy from obtaining the loans, the Wall Street Journal reported. USA Gymnastics filed for bankruptcy in December 2018, facing hundreds of lawsuits over its handling of decades of abuse by women’s team physician Larry Nassar, and as the U.S. Olympic & Paralympic Committee sought to revoke its status as the sport’s official governing body. The bankruptcy filing halted depositions and discovery in the lawsuits, for which mediation negotiations have dragged on for more than two years. It also halted the USOPC’s decertification efforts, creating an opportunity for USA Gymnastics to seek a reprieve. But the effort had an unexpected consequence when USA Gymnastics and other national sports governing bodies found themselves on the brink of a new financial crisis — the postponement of several lucrative domestic meets and the windfall expected from the 2020 Olympic Games, which may now be held in 2021. As dozens of its peers rushed to secure the loans from the federal government, USA Gymnastics had its application for the Paycheck Protection Program rejected by the Small Business Administration because it is in bankruptcy. USA Gymnastics then sued the federal government. Dozens of lawsuits challenging the SBA’s rule have been filed across the U.S. by small businesses, rural hospitals and Catholic dioceses arguing Congress never intended to exclude PPP loans from potential borrowers in chapter 11 bankruptcy. Judges who have ruled so far on the SBA’s position have come out both for and against the federal government, prompting appeals to higher courts. Read more. (Subscription required.)
Be sure to read today's RDW column on recent bankruptcy cases and PPP loans.
