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New PPP Rules for Businesses Involved in Bankruptcy Proceedings

New PPP Rules for Businesses Involved in Bankruptcy Proceedings

April 27, 2020 by Maylynn

April 27th, 2020 - Posted in BA Blog 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.

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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Maylynn Menoud  | Marketing Director
T: (305) 379-7904 | D: (305) 357-4794
mmenoud@bastamron.com

BAST AMRON is a boutique law firm focused on business insolvency and litigation. Our insolvency practice emphasizes workouts, restructurings, liquidations, bankruptcy, and bankruptcy avoidance. We represent debtors, creditors, committees, trustees, and other fiduciaries in bankruptcies, receiverships, and assignments for the benefit of creditors. Our litigation practice is primarily plaintiff oriented. We know how to investigate, formulate and prosecute claims arising from business disputes. By combining our business insolvency knowledge with our extensive courtroom experience, we successfully guide our clients through all aspects and types of commercial litigation in state and federal courts across the country. Whether the issue is litigation or insolvency or both, we view our clients’ needs through a holistic lens to formulate and implement dynamic solutions to their most important challenges.

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