The United States Court of Appeals for the Fifth Circuit has dealt a blow to debtors seeking Paycheck Protection Program (“PPP”) loans under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). In a decision entered on Monday, June 22, Judge Jerry Smith issued a short, three-page opinion in the case Hidalgo County Emergency Service Foundation v. Jovita Carranza (In re Hidalgo County Emergency Service Foundation) that could have long-lasting ramifications for many debtors, both in and outside of the Fifth Circuit.

In Lane v. Bank of New York Mellon (In re Lane), No. 18-60059, 2020 WL 2832270 (9th Cir. June 1, 2020), the United States Court of Appeals for the Ninth Circuit was asked to decide whether a bankruptcy court may void a lien under section 506(d) of the Bankruptcy Code when a claim relating to the lien is disallowed because the creditor who filed the proof of claim did not prove that it was the person entitled to enforce the debt the lien secures. Employing a narrow reading of section 506(d), the Ninth Circuit answered the question in the negative.

The bankruptcy trustee of a bank holding company was not entitled to a consolidated corporate tax refund when a bank subsidiary had incurred losses generating the refund, held the U.S. Court of Appeals for the Tenth Circuit on May 26, 2020. Rodriguez v. FDIC (In re United Western Bancorp, Inc.), 2020 WL 2702425(10th Cir May 26, 2020). On remand from the U.S. Supreme Court, the Tenth Circuit, as directed, applied “Colorado law to resolve” the question of “who owns the federal tax refund.” Id., at *2.

One of the landmark protections enacted by the Coronavirus Aid, Relief and Economic Security, or CARES, Act on March 27 was the Paycheck Protection Program, or PPP. Under the program, small businesses (e.g., those with fewer than 500 employees) — and certain other businesses in specific industries — are eligible to receive loans that will be fully forgiven if utilized under the terms of the program, including applying at least 75% of the funds received from the loans to payment of payroll expenses.

One of the landmark protections enacted by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was the Paycheck Protection Program (“PPP”). Under the PPP, small businesses (businesses with fewer than 500 employees) are eligible to receive loans that will be fully forgiven if utilized under the terms of the Program, including applying at least 75% of the loans to payroll. The loans may also be used for payment of interest on mortgages, rent, and utilities. The PPP loans are capped at $10 million for each small business.

3 Questions Every Company Should Ask Now

Economic stimulus packages, like the CARES Act, will provide some financial relief for Americans reeling from the impacts of the coronavirus pandemic. Unfortunately, unscrupulous fraudsters will manipulate these financial lifelines and the instability that has taken hold of so many households. This means government investigators across all jurisdictions will be on high alert and more active than ever.

Debtors in bankruptcy, including hospitals and skilled nursing facilities, left out under the CARES Act PPP

A bankruptcy court’s preliminary injunction was “not a final and immediately appealable order,” held the U.S. District Court for the District of Delaware on Dec. 10, 2019. In re Alcor Energy, LLC, 2019 WL 6716420, 4 (D. Del. Dec. 10, 2019). The court declined to “exercise [its] discretion” under 28 U.S.C. §158(a)(3) to hear the interlocutory appeal. Id., citing 16 Wright & Miller, Federal Practice and Procedure, §3926.1 (3d ed. 2017) (“There is no provision for appeal as of right from an injunction order of a bankruptcy judge to the district court.”).

A creditor’s “later-in-time reclamation demand is ‘subject to’ [a lender’s] prior rights as a secured creditor,” held the U.S. Court of Appeals for the Seventh Circuit on Feb. 11, 2020. In re HHGregg, Inc., 2020 WL 628268 (7th Cir. Feb. 11, 2020). And “[w]hen a lender insists on collateral, it expects the collateral to be worth something,” said the U.S. Court of Appeals for the Third Circuit on Feb. 11, 2020, when rejecting a guarantor’s “novel reading” of his security agreement. In re Somerset Regional Water Resources, LLC, 2020 WL 628542 (3d Cir. Feb. 11, 2020).

Lender repossesses the equipment of its business borrower after it defaults on its secured loan agreement. Because borrower needs the equipment to run its business, it then files a Chapter 11 petition and promptly asks lender to return the equipment. Lender refuses because the equipment secures the defaulted loan. Depending on where the debtor sought bankruptcy relief (e.g., New York or New Jersey), lender may be subject to sanctions for holding on to the equipment.