The SBA’s Rules Exclude Bankruptcy Debtors From Relief Under the Paycheck Protection Program

The Bottom Line

Recent bankruptcy court decisions in In re Hidalgo and In re Cosi Inc. indicate that courts are split on whether the U.S. Small Business Administration (SBA) and participating lenders can deny Paycheck Protection Program (PPP) loans to businesses that are debtors in a pending bankruptcy proceeding.

The SBA’s Bankruptcy Exclusion

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

The coronavirus pandemic has left companies increasingly concerned about the possibility of winding-up as a result of a failure to pay debts. In a situation where a party’s disputed debt is subject to an arbitration clause, the debtor may wish to seek a stay or dismissal of any winding-up applications commenced against it before the court in favour of arbitration.

Less than three weeks after the Intervention Measures to Mitigate the Effects of the COVID-19 Infectious Disease Epidemic on Citizens and the Economy Act (Zakon o interventnih ukrepih za zajezitev epidemije COVID-19 in omilitev njenih posledic za državljane in gospodarstvo; the “Intervention Act”) came into force, new amendments are on their way.

As businesses of all sizes braces for the impact of COVID-19 over the next several months, and possibly years, the rise of bankruptcy filings is inevitable.

The impact on small businesses in particular is likely to be devastating. While you may be familiar with traditional filings under Chapter 11 of the Bankruptcy Code, you may be less familiar with the recently enacted Small Business Bankruptcy Reorganization Act (SBRA), which was expanded in light of the COVID-19 pandemic.

Commentators, economists and government officials are struggling to come up with sufficiently-hyperbolic language to describe the economic fallout from the shuttering of the world economy in the wake of the COVID-19 pandemic. Words such as “catastrophic” are used with disturbing frequency. Even if some of these prophecies turn out to be overwrought, it appears inevitable that an unprecedented number of businesses, large and small, will require compromises from their creditors in order to continue in business.

The Bottom Line

Can a company in liquidation adjudicate? Balfour Beatty Civil Engineering Limited & Anor v Astec Projects Limited, or what happens when an irresistible force meets an immoveable object?

“Art is born when the temporary touched the eternal; the shock of beauty is when the irresistible force hits the immoveable post” G K Chesterton

As per the Presidential Decree No. 2480 published in the Official Gazette No. 31114 dated April 30, 2020, judiciary period suspension stipulated under provisional article 1 of the Law Amending Certain Acts No.7226 published in the Official Gazette No. 31080 dated March 26, 2020 is temporarily extended with the exception of the mandatory administrative application periods stipulated under Public Procurement Law No. 4734, due to the Covid-19. Accordingly;