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Analysis: A New Challenge for Debtors Who Received PPP Loans Under the CARES Act

Submitted by ckanon@abi.org on
The CARES Act and corresponding paycheck protection program (PPP) provisions continue to provide fertile ground for discourse concerning policy implications and legislative intent amid an unprecedented pandemic, according to an analysis by David M. Barlow of the U.S. Bankruptcy Court for the District of Arizona in Phoenix. In the early months of implementing the CARES Act’s PPP provisions, the bankruptcy world was particularly fraught with such debate. Courts across the country grappled with the SBA’s authority to enforce rules prohibiting access to the $659 billion of relief afforded to small businesses solely based on their status as debtors in bankruptcy. Although that phase of litigation appears to have concluded, debtors who received PPP loans and are now seeking loan forgiveness may need to clear a new hurdle. Specifically, lenders of the PPP loans may refuse to process a borrower’s application for loan forgiveness because the applicant’s filing of bankruptcy constituted a default under the terms contained in the PPP loans. Despite going to a lot of places and engaging in what has affectionately been referred to by one commentator as the “SBA Tango,” debtors may end up somewhere they have already been: in front of a bankruptcy court seeking the relief necessary to have their PPP loan forgiven.
Article Tags
Legislation
Covid19
Finance and Banking
Small Business
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Double Your PPP Loan: Automatic Forgiveness Under $150,000, and More

Submitted by ckanon@abi.org on
Sens. Marco Rubio and Susan Collins have released a 92-page proposed bill for the “Continuing Small Business Recovery and Paycheck Protection Program Act,” Forbes reported. The act is intended to correct some problems and a number of challenges that PPP borrowers have had, while opening new opportunities for many borrowers who were not treated as well as others under this Program. There is something in this new act for almost everyone. Click here to read the bill.
Article Tags
Legislation
Covid19
Small Business
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Bankruptcy Courts Interpreting New Subchapter V Issues Appear “Debtor Friendly”

Submitted by ckanon@abi.org on
Since the Small Business Reorganization Act of 2019’s (SBRA) effective date, U.S. bankruptcy courts have determined a number of novel issues by interpreting what are, essentially, brand new statutes, The National Review reported. To date, at least 13 bankruptcy courts have ruled on SBRA related issues. Overall, bankruptcy courts appear to be taking a “debtor friendly” approach to these issues, which is in line with Congress’s intentions underlying SBRA and is generally reflected in the holdings listed below. Only two of the SBRA-related decisions denied the respective debtor’s requested relief.
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Small Business
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Bankruptcy Code
1189
1190
1191
101
103
327
330
348
349
365
503
706
727
1102
1106
1112
1115
1121
1123
1129
1141
1201
1208
1221
1228
1301
1305
1307
541
Topics
Small Business

Opinion: The Media's Portrayal of Small Businesses Closing Is Insulting

Submitted by ckanon@abi.org on
Recently, Lending Tree published a report that gravely warned as many as 40% of small businesses have less than a month’s worth of cash and that, without government help, “are in danger of shutting down” — 40%! Even if a third of the 30 million small businesses in this country shut down (Lending Tree’s range was 24% to 40%) that would be like 10 million businesses going bust, according to an op/ed published by The Washington Times. That sounds terrifying until you look at this 2016 report by JP Morgan Chase, which revealed that the typical small business — even in growing economic times — normally has only 27 days of cash on hand. Not only that, but the JP Morgan Chase study assumed no future revenues, which is a lot worse of a scenario than today’s reality. So what’s up with this? A representative from Lending Tree admitted that “there isn’t typically a ton of businesses closing en masse,” but, he wrote back to me that “what is interesting now is that business revenues plummeted in March and April, and as of yet still have not recovered. That suggests businesses may need to pay their bills by other means.” What means could that be? Ah-hah! Maybe financing from Lending Tree? Also misleading is when academics make sweeping statements like the one made by a University of Connecticut economics professor where he literally predicts that giant corporations may be the “only survivors” in the post-pandemic economy. Yes, that’s right folks: All 30 million small businesses will be wiped out. 
Article Tags
Covid19
Small Business
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Lynn Tilton Is Suing Small Companies She Once Led for $30 Million

Submitted by ckanon@abi.org on
Turnaround executive Lynn Tilton is suing troubled small businesses she once ran, after stepping away from leading them as the COVID-19 pandemic tore through the economy, The Wall Street Journal reported. Tilton has filed lawsuits in New York against metal refiner Libertas Copper LLC, employment agency Snelling Holdings LLC, shower-curtain maker Glenoit Universal Ltd., game-controller maker FSAR Holdings Inc. and 11 other companies that she had managed for years. In the aggregate, the complaints are seeking more than $30 million in management fees, tax distributions and indemnity from the companies, which can’t pay their lenders. For years, Tilton collected millions of dollars in fees from what was known as the Patriarch portfolio of companies, a collection that included more than 75 businesses, according to the website of Patriarch Partners LLC, Tilton’s management affiliate. Some companies in the portfolio, such as fire-engine maker American LaFrance and fabric maker Duro Textiles, shut down, with or without the benefit of bankruptcy. Other companies, and their debts, were combined, and it is unclear how many businesses remain in operation.
Article Tags
Covid19
Small Business
Turnaround Issues
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Bankruptcy Code
105
327
365
1103
1114
362
Topics
Puerto Rico
Small Business

Opinion: The One Change That Could Save Your Neighborhood Stores

Submitted by ckanon@abi.org on
For the typical small business, rent is an enormous expense, second only to payroll — and there’s no blueprint for how small-business owners should deal with their landlords during an economy-toppling pandemic, according to an op-ed in The New York Times. Here’s one option: Ignore your landlord and plan on resuming rent payments when sales hopefully improve, and try to not get evicted in the meantime. Another option? Stay current on rent and pray that the economy recovers before you run out of cash. Either way, small businesses are on the hook for making rent payments in full, even if the value of commercial space they lease greatly decreases. Entrepreneurs in hard-hit areas are at risk of losing not only their businesses but also their homes and savings. Large businesses benefit enormously from the flexibility afforded to them by bankruptcy law, but the Bankruptcy Code is not as friendly to small businesses. Chapter 11 was recently amended so that small businesses can stay alive even if their creditors aren’t paid in full — but these changes didn’t apply to landlords. This means a small business can’t remain in the same commercial space unless it pays everything owed under the lease, including all back rent. If owners are in deep enough trouble to file for bankruptcy, there’s a decent chance they don’t have the funds to pay this rent in full. One possible solution is for Congress to temporarily change bankruptcy law so that small businesses can be allowed to pay their landlords more reasonable amounts until the pandemic is behind us.
Article Tags
Covid19
Small Business
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Head of the Line: Big Companies Got Coronavirus Loans First

Submitted by ckanon@abi.org on
Ever since the U.S. government launched its emergency lending program for small businesses on April 3, there have been complaints that bigger companies had their loans approved and disbursed more quickly, and there is now evidence to back up those complaints, the Associated Press reported. Its analysis of the Small Business Administration’s (SBA) $659 billion Paycheck Protection Program shows that nearly a third of the loans approved in the program’s first week ranged from $150,000 to $10 million, the maximum allowed. In a second round of funding that began April 27, such loans made up just 7.4% of the total. The average loan size fell from $257,240 on April 10 to nearly $105,000 as of July 17, according to the SBA. The PPP made very low-interest loans available to any business — or any franchisee of a business — with under 500 employees. Larger companies with connections to major national or regional banks got priority treatment in the program’s initial phase, while many smaller businesses said they were turned away because the banks required them to have a checking account, a credit card and a previous loan to be considered. Some small businesses submitted an application but then heard nothing. Many learned not from their bank but via news reports that the initial $349 billion in funding had run out in less than two weeks.
Article Tags
Business Reorganization
Covid19
Small Business
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