Are Companies in Bankruptcy Eligible for PPP Loans under the US CARES Act?
The CARES Act does not expressly provide that companies in bankruptcy are ineligible to receive PPP loans; the CARES Act is, instead, silent on the issue. Nonetheless, the SBA has taken measures to block companies in bankruptcy from receiving PPP loans—first, by requiring participating lenders to use an SBA-sponsored loan application that, on its face, disqualifies any small business in bankruptcy and, second, by issuing administrative guidance in the form of a new interim final rule, effective April 24, 2020, expressly providing that companies in bankruptcy are ineligible to participate in the PPP (the “Interim Final Rule”). In response to the conflict between these rules and the text of the CARES Act itself and in an attempt to access PPP loans that are essential for certain companies to stay in business, a growing number of debtors whose PPP applications were denied on the basis of the SBA’s bankruptcy restriction have turned to bankruptcy courts for relief.
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