PPP loan liability and bankruptcy: proceed with caution


On March 27, 2020, the United States Congress enacted the Coronavirus Aid, Relief, and Economic Stabilization Act (“CARES Act”); two key elements of this legislation were the Payroll Protection Program (P3) loan program and an increase to $ 7.5 million in debt limits for debtors seeking relief under Subchapter V of Chapter 11 of the recently promulgated Bankruptcy Code. 11 USC §§1181-1195.

Subchapter V, enacted in 2019 by the Small Business Reorganization Act, simplified Chapter 11 cases for small businesses with unconditional, secured and unsecured debts totaling less than $ 2,725,625. By proceeding under subchapter V of the Bankruptcy Code, a debtor can, among other things, seek disclosure and confirmation in a one-step confirmation process, use accelerated filing deadlines and retain ownership of capital without these holders satisfy the “new value” exception to the top priority rule under 11 USC § 1129 (b).

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