Day: January 4, 2021

Courts appeared to be split as to whether businesses are eligible for a Paycheck Protection Program (“PPP”) loan under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) if you are a business in bankruptcy. The CARES Act was created to, inter alia, provide small businesses with loans under the PPP to keep their workforce employed. Uncertainty quickly arose as to whether businesses in bankruptcy were proper candidates for these loans. Neither the statute nor the initial regulation disqualified them, but the SBA later adopted an application form which specifically disqualified them. The SBA disqualification was under the rubric that business debtors pose an “unacceptably high risk for an authorized use of funds or non-payment of unforgiven loans.” Further, the SBA posits that the PPP loans fall under the category referred to as Section 7(a) loans which embody the standard of the loan being of “sound value or so secured as reasonable to assure repayment.”

Earlier this year, bankruptcy courts in Florida, Washington, New Mexico and Tennessee found debtor’s exclusion from eligibility from the SBA/PPP loans to be unlawful, determining that the exclusion of business debtors from PPP loans while in bankruptcy was “arbitrary and capricious” and a violation of 11 USC Section 525(a), which in essence provides that a government unit may not discriminate with respect to a request for a grant based solely on the fact that they are a bankruptcy debtor. Other bankruptcy courts, such as in Delaware, New York, Maryland, Georgia and Maine, have found to the contrary and upheld the SBA’s position determining that business debtors are ineligible.  Most recent rulings have sided with the SBA’s position that such businesses are ineligible for a loan, noting that while the bankruptcy exclusion may be harsh, it is within the SBA’s authority. For example, see In re Cosi, Inc. Case # 20-10417 ( Bankr. D. Del. April 30, 2020)

On December 22, 2020, a three-judge panel in the 11th U.S. Circuit Court overturned a Bankruptcy Court ruling and upheld the SBA rule that makes bankruptcy business debtors ineligible for the PPP loans. See Gateway Radiology Consultants, P.A. , No. 20-13462 (11th Cir.), wherein the 11th Circuit overruled the Bankruptcy Court which had found that the SBA was “arbitrary and capricious” in exceeding its authority by disqualifying businesses in bankruptcy proceedings from PPP availability. The 11th Circuit now joins the 5th Circuit in finding that the SBA does not exceed its authority in declining to grant PPP loans to business debtors. ( In re Hidalgo County Emergency Service Foundation, 962 F.3d 838 ( 5th Cir. 2020)).

On December 27, 2020, President Trump signed the Bipartisan-Bicameral Omnibus COVID Relief Deal, which temporarily amended the bankruptcy code to allow PPP loans to some business debtors, but with the caveat that this change only would become effective if the SBA agrees to allow PPP loans in bankruptcy. Query as to whether this amendment changes the status quo on this issue at all, and why the SBA would do a 180 turn at this juncture.

To avoid the denial of a PPP loan, some businesses who otherwise would need bankruptcy protection have chosen to not file for bankruptcy relief at all, or once in a bankruptcy dismiss their bankruptcy to pursue PPP loans. Questions to ponder here are: whether a debtor who receives a PPP loan and then files for bankruptcy protection (as part of a pre-ordained plan) must disgorge the PPP loan, whether PPP loans received prior to a bankruptcy filing may be used as cash collateral in a later bankruptcy filing for purposes other than those allowed under SBA guidelines, the commingling of PPP loan funds with other bankruptcy proceeds, etc.

To discuss issues regarding PPP loans, creditors rights and bankruptcy or business workouts, please contact Leslie Beth Baskin, Esquire at 215-241-8926 or at


We are a “get’er done” society. We embrace challenges – and applaud those who complete them promptly. Nothing exemplifies that attitude more than creating not one, but two COVID-19 vaccines, in less than a year. Another example has been funding relief for America’s businesses shuttered by the Pandemic.

From the $2.2 trillion CARES Act funding quickly passed in April, to the tentative deal for “just” $900 billion in the pending bill, our leaders have acted quickly to try to help our citizens and businesses get back on their feet, after a knockout punch no one saw coming.

But sometimes done is not “better than perfect”?

The aphorism about the benefits of completing a task, rather than obsessing over the failure to “dot i’s and cross t’s”, falls down when the “i’s and t’s” turn out to be just as important in the long run as the completed task.

The 5,593 page Consolidated Appropriations Act 2021 left out liability protection for employers, schools and businesses, despite many calls for such relief. A similar liability limit bill was vetoed in my state, Pennsylvania, for protecting even firms that ignored public safety requirements. Why should such concerns matter so much, when balanced against the overwhelming demand for speedy relief, both financial and legal?

Consider the tragedies of Pennsylvania meat plant employees, who died of COVID-19 early in the Pandemic, and of their employers who were sued for failing to prevent their deaths. Other similar cases have been reported, particularly for health care workers. While the facts will be determined in the litigation, the allegations are predictable. The employers claim that employees were infected even though they had protective equipment. If the employers complied with all applicable safety rules, at the time, what more could they have done?

Why should an employer pay for an illness it couldn’t prevent, even though it tried, using all of the public health guidance available? Of course, those rules have evolved as science has learned more about the virus. But no one wants to hold employers to a standard they couldn’t have known at the time of the alleged violation.

Or do they?

Whether due to adverse publicity, a genuine desire to compensate the family of a fallen employee, or a cold, liability carrier’s cost benefit analysis of the expense of settlement against the slow burn of legal fees, counsel for an injured or deceased employee will often invest in lengthy litigation, in search of a large award.

It is easy to understand why the possibility of future lawsuits became less pressing to lawmakers than the actual needs of individuals and businesses alike for cash, whether to pay bills, or simply to stay alive in the hope for a “new post-vaccine normal”. Yet the cost of defending claims for harm allegedly caused by COVID-19, both spurious and legitimate, could be overwhelming – especially after businesses have already invested heavily in personal protective equipment and facilities modifications to try to stop the spread of the disease.

Moreover, keeping up with the flood of safety guidance from many sources during the Pandemic, especially as it has evolved with understanding of the virus, has been a challenge for those focusing on that question, much less for a business owner struggling to stay open and pay employees.

From a different perspective, will anyone remember the cash stimulus benefits after paying legal fees to defend claims from injured or deceased employees? If the philosophy of our relief efforts has been “no questions asked” compensation for businesses harmed by the virus, should funding for its human victims perhaps have been included as well?  After all, our society does compensate some harms without fault, such as auto accidents (in some states), or injuries caused by vaccines.

Such a compensation system would not multiply the tragedy of an employee death from COVID-19 to include the collapse of the firm that could not prevent it, especially if the employer tried to protect its employees under all safety guidelines.

(Of course, employers which cavalierly ignore safety rules should not get any liability protection.)

To paraphrase Martin Luther King, no one is healed until we are all healed, individuals and businesses alike. When Congress returns in January, balanced COVID-19 liability limitation should be as high on its agenda as stimulus checks for individuals.