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BUSINESS UPDATE: Paycheck Protection Program Loans May Not Be Available to Companies in Bankruptcy Says 11th Circuit

Posted on Dec 24, 2020 - News by

Is it game over for bankrupt debtors?  The Paycheck Protection Program (“PPP”) has made it possible for businesses struggling to overcome the impact of the Coronavirus pandemic by borrowing money to retain their employees and pay salaries.  The program contains language suggesting that bankrupt debtors are ineligible.  Consequently, some debtors litigated the issue and obtained favorable rulings from bankruptcy courts finding that the exclusion of bankrupt debtors from the program is unlawful.  The first appellate court to weigh in on the issue was the 5th Circuit Court of Appeals, which ruled back in June 2020 that a bankruptcy court exceeded its authority when it issued a preliminary injunction against the Small Business Administration (“SBA”).  The 11th Circuit Court of Appeals has now followed suit.  The 11th Circuit did not reach the question of whether bankruptcy courts may enjoin the SBA, but instead found that the SBA acted reasonably and consistent with its authority to exclude bankrupt debtors from the PPP.  We can anticipate that this issue will make its way to the Supreme Court.  Unless, of course, the new coronavirus relief package, which was recently passed by Congress and is being delivered to the President’s desk, is signed into law because it appears the new law permits bankrupt debtors to participate in the program.  Stay tuned.

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