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New PPP Rules for Businesses Involved in Bankruptcy Proceedings

Posted on April 27, 2020 in by Jaime Leggett

Many companies have questioned how their insolvency would impact their PPP applications, which require them to affirm that they have been adversely impacted by COVID-19. The SBA has issued a new rule stating that a PPP borrower or its owner cannot be in bankruptcy prior to disbursement of the loan. Per the Rule:

“If the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan. If the applicant or the owner of the applicant becomes the debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, it is the applicant’s obligation to notify the lender and request cancellation of the application.”

Link to rule on US Treasury site.

Full Text of Relevant Portion of Rule:

Eligibility of Businesses Presently Involved in Bankruptcy Proceedings
Will I be approved for a PPP loan if my business is in bankruptcy? No.  If the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan.  If the applicant or the owner of the applicant becomes the debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, it is the applicant’s obligation to notify the lender and request cancellation of the application.  Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes. The Administrator, in consultation with the Secretary, determined that providing PPP loans to debtors in bankruptcy would present an unacceptably high risk of a unauthorized use of funds or non-repayment of unforgiven loans.  In addition, the bankruptcy Code does not require any person to make a loan or a financial accommodation to a debtor in bankruptcy.  The Borrower Application Form for PPP loans (SBA Form 2483), which reflects this restriction in the form of a borrower certification, is a loan program requirement.  Lenders may rely on an applicant’s representation concerning the applicant’s or an owner of the applicant’s involvement in a bankruptcy proceeding.

If you have any questions about PPP applications or loans, please contact one of Bast Amron’s Insolvency Litigators.

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