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In record time, the Fifth Circuit granted a direct appeal and reversed the bankruptcy court on June 22, ruling that the Small Business Act bars the bankruptcy court from entering an injunction that requires the Small Business Administration to grant a so-called PPP loan to a company in bankruptcy, according to today's RDW column by ABI Editor-at-Large Bill Rochelle. On April 25, a bankruptcy court in Houston preliminarily enjoined the SBA from barring the chapter 11 debtor from receiving a loan under the Paycheck Protection Program, or PPP. Enacted on March 27 as part of the Coronavirus Aid, Relief and Economic Security Act, the PPP program allows the SBA to make loans that will be forgiven if at least 60% is spent for payroll. The SBA appealed. The district court stayed the preliminary injunction pending appeal and certified the case for direct appeal. The Fifth Circuit accepted the appeal and accelerated briefing. The last brief in the circuit was filed on June 19. The appeals court issued its three-page opinion three days later.

Hundreds of thousands of Americans who have lost their jobs during the coronavirus pandemic could be confronting an added barrier as they seek to rejoin the workforce: a bankruptcy on their record, the Wall Street Journal reported. Federal law allows private employers to turn down a job applicant because of a past bankruptcy filing, which employers can ask about on a job application or learn about through a credit check. Some business groups support the practice, saying that there are instances when the information is relevant, such as in hiring for positions that handle money. Consumer advocates disagree, saying that bankruptcy isn’t necessarily a sign of financial recklessness, but rather is frequently the unintended consequence of health problems or a divorce — or this year could involve a business done in by the pandemic. “There are millions of people, some who may have to file for bankruptcy as a result of [the pandemic], that could be adversely affected when they try to re-enter the job market,” said Tara Twomey, executive director of the National Consumer Bankruptcy Rights Center. While it isn’t clear how many of the 21 million people currently unemployed may have filed for bankruptcy, University of Illinois at Urbana-Champaign law professor Robert Lawless says that the number could exceed 750,000 based on his estimate that at least 3.6 percent of the U.S. adult population has filed for bankruptcy in the last 10 years. An average of about 800,000 people filed for bankruptcy annually during the last five years, a figure that is expected to rise as the U.S. economy falters.

Oil allies in Congress appear to have eased pressure on the administration to help the struggling industry as states start to reopen and help increase demand. Still, the number of oil industry bankruptcies jumped in the second quarter of this year and many more are expected, a sign that earlier efforts by lawmakers and the recent rise in prices haven’t been enough to relieve the distress in the industry, Roll Call reported. Even though demand is picking up as economies start to reopen, a recent rise in coronavirus cases across the globe and in several states has the industry on the edge and could further slow its recovery. As he pushed for help, Sen. Kevin Cramer (R-N.D.) said he worried that struggling independent domestic oil producers could be gobbled up by larger multinational corporations. “Smaller oil company bankruptcies have been a concern since the beginning of the COVID-19 pandemic, especially with the global oil price war caused by Saudi Arabia and Russia,” Cramer said. “Over-consolidation will not serve North Dakota or domestic energy development well.” Sen. Lisa Murkowski (R-Alaska) suggested that the government can take additional steps to help by buying oil at low prices for the SPR. But lawmakers have so far been unable to move legislation that would provide $3 billion for the Energy Department to make such a purchase. Read more. 

In related news, the companies that operate offshore drilling rigs for major oil producers face a second wave of bankruptcies in four years amid a historic drop in energy prices that likely will leave surviving drillers more closely tied to big oil firms, Reuters reported. A collapse of the offshore industry will have broad impact. Drillers and their suppliers have driven innovation that has helped shale and offshore wind companies by pioneering remote monitoring and control, and last year directly generated about 25 percent of global oil production. The offshore services business is the worst performing of the oilfield services sector, with shares of the 10 largest publicly traded down 77 percent since the start of the year. Four of the seven largest offshore drillers — Diamond Offshore Drilling Inc., Noble Corp., Seadrill Ltd and Valaris Plc — have sought protection from creditors or begun debt restructuring talks that could lead to bankruptcy. Two others are reaching out to their creditors. Pacific Drilling last month said that it may need to modify terms of its debt, and was seeking alternative funding in the event creditors would not accept new terms. Shelf Drilling, the ninth largest by revenue, is seeking talks with creditors over loan covenants that take effect next year, executives said. Read more. 

Get a better understanding of what happens when an oil, gas or other natural resources company goes bankrupt. Order your copy of ABI's revised and expanded When Gushers Go Dry: The Essentials of Oil & Gas Bankruptcy, Second Edition. 

The coronavirus recession is pushing many companies into bankruptcy, a painful process that has led to layoffs, wiped out some investors and hurt the economy. But the chief executives of some of these businesses are doing just fine, according to a New York Times analysis. Companies that are struggling to pay creditors and suppliers are managing to find millions of dollars to pay bonuses to their bosses. The payments, which are made just before a bankruptcy filing, appear to be legal and have been made by several companies. J.C. Penney, which is closing 154 stores, paid its chief executive, Jill Soltau, $4.5 million. The chief executive of Whiting Petroleum, which sought bankruptcy protection in April, received $6.4 million, and Chesapeake Energy is paying bonuses ahead of an expected bankruptcy filing. Executives at Hertz also got payments before the rental-car giant sought bankruptcy protection. Companies have said that the payments are meant to help them retain qualified executives through the recession and bankruptcy. This is not the first time that executive pay at troubled companies has prompted an outcry. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 aimed to curb retention bonuses paid during bankruptcy. Under the law, companies are allowed to pay incentive-based bonuses, but the legal cost of constructing such payments and getting them approved in bankruptcy court soared after 2005, according to research by Jared Ellias, a professor at the University of California’s Hastings College of the Law. Of course, Congress could change bankruptcy law so that compensation payments made before the filing could be clawed back, Ellias said. In addition, lawmakers could make it easier for creditors to pursue claims against executives after the bankruptcy. Read more. 

In related news, Ascena Retail Group Inc., the distressed parent company of Ann Taylor and Lane Bryant, plans to pay about $5.5 million in cash retention and incentive awards to three executives, becoming the latest struggling company to hand out bonuses to top management, the Wall Street Journal reported. The incentives come after Ascena warned last month that it was evaluating all options as the coronavirus pandemic has significantly disrupted its business, resulting in reduced earnings and cash flow, as well as higher levels of debt and deferred liabilities. The company disclosed Monday it has agreed to pay nearly $2.14 million in bonuses to Chief Executive Gary Muto and to Carrie Teffner, interim executive chair of the board. Executive Vice President and Chief Financial Officer Dan Lamadrid will get about $1.21 million, according to a regulatory filing. The CEO will also receive more than $1 million in performance-based payments for fiscal 2018 and fiscal 2019. The finance chief will receive $83,650 for those two years, the filing shows. Read more. 

GNC Holdings Inc. filed for bankruptcy protection with the aim of selling itself and closing stores after its latest effort to manage its debt load unraveled amid the coronavirus pandemic, Bloomberg News reported. The health and wellness company’s chapter 11 petition filed in U.S. Bankruptcy Court in Delaware allows the retailer to keep operating while it pursues a dual-track process to restructure its balance sheet in a standalone plan or complete a sale, according to a statement. GNC entered into the process with support from a majority of its secured lenders and an affiliate of its largest shareholder, Harbin Pharmaceutical Group Holding Co., the Pittsburgh-based company said in the statement. The agreement also includes its largest vendor and joint venture partner, IVC. Certain lenders also provided $130 million in additional liquidity to financially support the company through its proposed restructuring. The company’s pre-negotiated plan will shutter stores as it looks to emerge leaner. It also reached an agreement in principle to market and sell itself through a court-supervised process, with an initial bidding price of $760 million, subject to court approval. A higher bid could be presented and accepted, and would be implemented instead of just the standalone plan transaction, according to the statement. With the support of its lenders and stakeholders, GNC expects to confirm a standalone plan of reorganization or complete a sale that will allow the business to exit from its restructuring process by the fall. GNC’s U.S. and international franchise partners and its corporate operations in Ireland, which are separate legal entities, aren’t part of the bankruptcy.

Thousands of Virginia residents are now at risk of losing their homes during the pandemic under a new order issued by the state Supreme Court, DCist.com reported. The order, released on Monday by Virginia Chief Justice Donald Lemons, allows courts across the state to resume hearings for evictions on June 29, the day after a temporary stay expires. A second order lets courts immediately resume eviction hearings that aren’t related to nonpayment of rent, such as if a tenant breaches the terms of their lease. Virginia Gov. Ralph Northam (D) had requested a pause on evictions for most of June while the state prepared a new rent relief program to help tenants who have lost income during the pandemic. That program has not yet been implemented. It’s not clear whether Northam will request another pause on evictions while the relief program is underway. Advocates for low-income renters say that the order is both surprising and disappointing, after Virginia’s Supreme Court had approved multiple delays for eviction cases as the public health crisis continues. The advocates say that they’re rushing to find ways to delay evictions for Virginians at immediate risk of homelessness. Some are continuing to encourage local sheriffs to delay issuing writs of eviction in areas with high COVID-19 rates, as well as communicating with landlords’ attorneys to ask whether their clients plan to pursue eviction proceedings during the pandemic.