Commentary: Proposed Extension of the PPP Loan Program: A Nice First Step…

Commentary: Proposed Extension of the PPP Loan Program: A Nice First Step…

ABI Bankruptcy Brief

August 20, 2020

ABI Bankruptcy Brief

Commentary: Proposed Extension of the PPP Loan Program: A Nice First Step…

by Tom Salerno
Stinson LLP (Phoenix)

As COVID-19 continues to wreak havoc on the world economy, at press time Congress is slowly grinding toward yet another extension of the unprecedented Payroll Protection Program Second Draw Loan bill, introduced on July 27, 2020. S. 4321 (the “proposed PPP III legislation”) has become mired in partisan politics that is the hallmark of our age, but some version is likely to pass. After months of stunningly unnecessary litigation and convoluted legal machinations forced on debtors by the Small Business Administration (SBA) in their dogmatic defense of the now infamous April 24, 2020, rule that categorically denied debtors in bankruptcy from accessing the PPP loans on the basis that debtors “present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans,” the proposed PPP III legislation effectuates a stunning reversal of course and acknowledges (finally) that the SBA will grudgingly allow debtors (while still somewhat slimy) to access PPP III loans. The proposed PPP III legislation is certainly a step in the right direction. However, there are at least two aspects that merit further attention. The bankruptcy provisions are found in § 116 of the proposed PPP III legislation and are set forth below for ease of reference. Bottom line: In this author’s opinion, there are two fixes Congress should consider making to the proposed PPP III legislation. Click here to read Salerno’s full commentary.

Next Steps on Coronavirus Stimulus Package Divide Both Parties

Lawmakers from both parties are growing increasingly worried by the stalemate over a coronavirus aid package, but internal divisions on each side are complicating their efforts to propose new measures, the Wall Street Journal reported. In the House, Speaker Nancy Pelosi (D-Calif.) was facing pressure from an assortment of Democrats to consider alternatives to her approach of pushing Republicans to accept a deal similar in content to a package that the House passed in May. A group of more than 100 Democrats wrote to her seeking a vote on a measure focused on extending a federal unemployment supplement during the pandemic, and Democrats from districts that President Trump won were showing jitters. In the Senate, some Republicans are hoping to vote on a cheaper, pared-down version of the aid bill they unveiled last month, although some GOP aides said that they saw early signs that it wouldn’t be able to muster a Senate majority. The new proposal, referred to as the “skinny bill,” is expected to cost about half of the earlier $1 trillion legislation, in an effort to appease GOP senators worried about the price tag of the federal government’s efforts in response to the coronavirus pandemic. The new proposal is expected to include $300 in weekly federal unemployment insurance through Dec. 27, establish legal protections for businesses and health care facilities, provide $29 billion in health care funding and $105 billion for schools and permit the U.S. Postal Service to not repay a $10 billion loan set up in a previous aid package. But Republican leaders are first assessing whether there will be enough GOP support to vote on the legislation. Senate Democrats are expected to oppose the measure as insufficient to meet the health and economic needs sparked by the pandemic. (Subscription required.)

Weekly Unemployment Claims Crest Back Over 1 Million

The number of people applying for the first time for unemployment insurance ticked up last week to 1.1 million, from 970,000 the week before, a sign that job losses continue to plague the labor market five months into the coronavirus pandemic, the Washington Post reported. The weekly jobless claims had sunk slowly in recent months but have remained well above historical highs, averaging about 1.18 million a week for the last four weeks. The initial claims and new claims for Pandemic Unemployment Assistance, the program available to gig and self-employed workers, both went up. About 543,000 new claims were filed for PUA for the week that ended on Aug. 15, up from 488,000 the week before. More than 28 million people were receiving some form of unemployment benefits as of Aug. 1, the most recent week for that statistic, about equal to the previous week. The country’s unemployment rate, last calculated in July, was 10.2 percent, and economists have warned that it could go up in August as the virus continues to alter life around the country.

In related news, the federal government has approved funding for 11 states — Arizona, Colorado, Idaho, Iowa, Louisiana, Maryland, Missouri, Montana, New Mexico, Oklahoma and Utah — to offer the $300 supplement to jobless benefits, according to the Federal Emergency Management Agency, which is overseeing the assistance, reported. The aid, part of an executive measure recently signed by President Trump, comes after a $600-a-week federal subsidy enacted by Congress early in the coronavirus recession ended. It had been in place for about four months, from early April to the end of July. Many other states haven’t yet committed to offering the $300 federal subsidy. Officials have cited cost, legal and administrative concerns.

Subchapter V: A Small Business Lifeline Just In Time

The Small Business Reorganization Act (SBRA) took effect this past February, just before small businesses were hit by the pandemic-induced financial free fall. While this little law still hasn't been a headline-grabber, its importance grew exponentially overnight, according to a Forbes analysis. Subchapter V of the SBRA added a simplified version of chapter 11 for entities (businesses and individuals) whose debts don't exceed a certain threshold. Developing and getting approval for a repayment plan are much faster processes, and while there’s still court oversight, it may be less intrusive than a standard chapter 11 proceeding. Before, a small business or individual with a significant income hit would likely run into trouble meeting the eligibility requirements for a chapter 13, even under the relaxed guidelines set by the CARES Act — and those guidelines are due to expire soon. The only other alternative was a chapter 7, and that meant liquidating assets and closing up shop for good. The eligible debt threshold was recently increased as part of the pandemic response, giving even more small businesses the option to use the simplified subchapter V process.

Renewed Focus on Race Triggers Surge of Interest in Community-Based Lenders

The coronavirus pandemic and the heightened attention on race have thrown new light on a longstanding source of economic inequality: Black communities have less access to credit than white ones, the Wall Street Journal reported. To address that gap, the government and Wall Street are turning to a small network of lenders set up precisely to address that disparity. Community development financial institutions (CDFIs) are community-based banks, credit unions and investment funds that lend to home buyers, small businesses and others in rural, impoverished and minority communities. Earlier this year, Congress and the Trump administration earmarked billions of dollars for CDFIs to issue Paycheck Protection Program loans to small businesses. Meanwhile, CDFIs have received multi-million-dollar investments from traditional lenders such as Goldman Sachs Group Inc. and Bank of America Corp., and new corporate supporters such as Netflix Inc. and Google Inc. There are about 1,100 CDFIs nationwide. Under a program created in 1994, the Treasury Department’s CDFI Fund certifies CDFIs and provides them with grants, low-cost credit and operational support. Demand for CDFI Fund grants and support typically far exceeds Congress’s yearly appropriations. Fourteen percent of Black adults didn’t have a bank account in 2019, according to the Federal Reserve, compared with 6 percent of adults overall. Just 23 percent of Black-owned small businesses with employees used bank funding in the last five years, compared with 46 percent of white-owned firms, a Fed report showed. (Subscription required.)

Virus Alters Where People Open Their Wallets, Hinting at a Halting Recovery

Strict lockdowns ended weeks ago, but many people across the country are still avoiding malls, restaurants and other businesses. The shift in behavior points to a reshaping of American commerce, fueling questions about the strength and speed of the economic recovery as the coronavirus continues to spread, the New York Times reported. Through the end of last week, daily visits to businesses were down 20 percent from last year, according to a New York Times analysis of foot traffic data from the smartphones of more than 15 million people. After an initial plunge in the spring, consumer habits have been slow to recover, the data shows. As state and local officials have moved to reopen businesses, people have reacted differently depending on how they view the threat of the virus. Shopping behavior has varied widely by the type of business in question, how prevalent the outbreak is nearby and even voting patterns in the region. For example, visits to businesses have rebounded more in Alabama, a largely conservative state, than in the more liberal Vermont. But in comparison with last year, people in Vermont have been shopping again more than people in California, where the virus remains a greater threat. Everywhere, trips to pharmacies and hospitals have fallen, while those to gas stations and convenience stores have held steady or even increased. How people spend will determine which companies survive, and who ultimately keep their jobs. Continued weakness at brick-and-mortar stores has enormous implications for an economy that has had years of gains wiped away in the months since the pandemic hit. The disparities in how people shop hint at a prolonged, uncertain and uneven recovery.

Proposed Amendments to Bankruptcy Rules and Forms Published for Public Comment

On June 23, 2020, the Judicial Conference Committee on Rules of Practice and Procedure (Standing Committee) approved publication of proposed amendments to the following:

• Appellate Rule 25;
• Bankruptcy Restyled Rules Parts I and II; Rules 1007, 1020, 2009, 2012, 2015, 3002, 3010, 3011, 3014, 3016, 3017.1, 3017.2 (new), 3018, 3019, 5005, 7004, and 8023; and Official Forms 101, 122B, 201, 309E-1, 309E-2, 309F-1, 309F-2, 314, 315, and 425A;
• Civil Rule 12 and Supplemental Rules for Social Security Review Actions Under 42 U.S.C. § 405(g); and
• Criminal Rule 16.

The comment period is open from Aug. 14, 2020, to Feb. 16, 2021. For information on the proposed amendments and instructions on how to submit comments, please click here.

Latest ABI Podcast Examines Issues Confronting Bankruptcy and Insurance Law

ABI Editor-at-Large Bill Rochelle talks with Susan N.K. Gummow of Foran Glennon (Chicago) about key issues confronting bankruptcy and insurance jurisprudence. Gummow is the author of the recently released Bankruptcy and Insurance Law Manual, Fourth Edition, and discusses key scenarios, strategies and cases at the intersection of bankruptcy and insurance law. Listen to the podcast here.

To pick up your copy of Bankruptcy and Insurance Law Manual, Fourth Edition, please click here.

abiLIVE Webinars Next Week Look at PPP Loan Program and Examine Fraud Schemes, Relief Act Forgiveness Fraud, and International Commercial Fraud Issues

You will not want to miss two important abiLIVE webinars next week:

- Sponsored by ABI's Business Reorganization Committee, the "Paycheck Protection Program: Access to PPP Loans for Chapter 11 Debtors" abiLIVE webinar on Aug. 26 will focus on the key features of the Paycheck Protection Program (PPP) and the current legal landscape regarding the eligibility of companies in bankruptcy to receive PPP loans, including an overview of SBA guidance and recent court decisions. Click here to register for FREE.

- Sponsored by ABI's Commercial Fraud Committee, the "COVID-19: Fraud Schemes, Relief Act Forgiveness Fraud, and International Commercial Fraud Issues" abiLIVE webinar on Aug. 27 will discuss hot topics related to COVID-19, particularly fraudulent schemes likely expected due to the pandemic and schemes that may be revealed as a result of the pandemic's economic repercussions. The panelists will also address the coronavirus relief bill and resulting potential fraudulent schemes, as well as the international impact of the pandemic. Click here to register for FREE.

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New on ABI’s Bankruptcy Blog Exchange: CFPB Extends Comment Period on Overhaul of Redlining Law

The CFPB is giving stakeholders until Dec. 1 to file comments on a potential overhaul to its rules related to the Equal Credit Opportunity Act, which prohibits discrimination in credit and lending decisions, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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