The expansion of PPP loans in the Covid-19 relief program: will help come soon enough?
Congress has allocated just an additional $ 284 billion for the revamped paycheck protection program. By comparison, the $ 349 billion allocated in April 2020 to the initial PPP was consumed by borrowers in just two weeks.
With a changing administration and a reconstituted Small Business Administration and a US trustee program (a branch of the Department of Justice that oversees the bankruptcy process), it is possible that these agencies will act quickly to provide needed assistance to debtors.
During the transition, however, these already overwhelmed agencies will likely be unable to quickly effect and implement a common policy that would provide significant relief to debtors in bankruptcy. By the time a program is implemented, PPP funds will have already been allocated to other worthy small business borrowers, and those struggling debtors’ hopes of catching even the smallest break during this pandemic will have been dashed.
Bankrupt debtors have been expressly excluded from participation in PPP since the program’s first guidelines instituted by the SBA, and any renewed hope of making a fresh start has been significantly delayed under the law. Consolidated Appropriation Act (CAA or new recovery plan) adopted by Congress. The latter law includes measures to help bankrupt debtors, but the administrative prerequisites for their implementation are heavy.
Given the limited funds allocated to the reopened PPP, these funds could run out before the implementation of programs providing benefits to debtors.
The initial request to participate in the PPP
The SBA’s initial PPP application made it very clear that a bankrupt small business debtor would not be considered for loans if he (or a 20% owner) was a bankrupt debtor. Throughout the first period of PPP eligibility, the SBA steadfastly defended this position; it implemented more explicit additional guidelines that barred bankrupt debtors, in part in response to several court challenges to the outright ban on the SBA.
The most recent SBA guidelines, released in response to the new stimulus package, expressly reaffirm that bankrupt debtors remain ineligible for PPP loans. Two circuit courts – the New Orleans-based Fifth Circuit and the Atlanta-based Eleventh Circuit – have backed the SBA by denying debtors access to P3 funds, but some debtors are hopeful that decisions to the contrary from the Vermont courts. and Indiana will be confirmed against the SBA to allow debtors to access P3 financing.
The Congress reopens the registration period
CAA renewed the PPP by reopening the application period for initial borrowers and implementing a second drawdown of up to $ 2 million for borrowers who have already exhausted their initial loan and continue to fight the pandemic.
The CAA contains several sharp changes to the bankruptcy code that would allow the distribution of PPP funds to certain small businesses debtors of bankruptcy. These eligible bankruptcy debtors would include small businesses with less than $ 7.5 million in debt that benefit from the new Chapter 11 Subchapter V provisions implemented under the Small Business Reorganization Act of 2019, as well as individual farmers and fishermen going bankrupt under Chapter 12., and other sole proprietors who go bankrupt under Chapter 13 of the Bankruptcy Code.
In addition to the other sizeable restrictions on PPP borrowers, Congress has carefully tailored this relief to limit it further to only the smallest debtors, possibly in an attempt to mitigate some of the harsher criticisms of PPP, namely that large companies were taking advantage of a program to help small business owners. By limiting eligibility to these specific types of bankrupt debtors, congressional targeting could not have been narrower or more precise.
The “improbable twist” of the statute
Despite Congress’ clarification in dedicating pages of statutory text to the exact steps needed to institute PPP loans for debtors, the law takes an unlikely turn when it indicates that the effective implementation of these measures to help debtors in debt. bankruptcy might not happen anytime soon. Instead, the core of these measures is submitted to a cohort of government regulators who come to an agreement on how (and apparently, if) to implement them.
The wording of the law provides that these new provisions which would allow bankrupt debtors to borrow under the P3 will only take effect following the collective “written determination” of the SBA and the US trustee program “which , subject to meeting any other eligibility condition, … [those] debtor[s] in possession or trustee[s] would be eligible for a [PPP] to lend.”
While the CAA makes it clear that bankrupt debtors should have the opportunity to participate in the PPP, Congress conditions the implementation of this relief by allowing, rather than directing, the SBA and the USTP to implement. implement these measures.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Tal Unrad is a partner in the Corporate & Securities and Bankruptcy & Financial Restructuring practice groups of Arent Fox LLP, based in the company’s Boston office. His practice focuses on corporate transactions, including distressed sales, debt and equity financing, and mergers and acquisitions.
James britton is an associate in the Bankruptcy & Financial Restructuring practice group at Arent Fox LLP, based in the firm’s Boston office. He focuses his practice on corporate restructuring and insolvency issues, helping creditors navigate the bankruptcy process and ensure their claims are paid.