New Mexico Court Enjoins SBA from Denying PPP Relief to Debtor in Bankruptcy

Holland & Hart Law Firm via JD Supra

May 14, 2020

On May 1, 2020, the United States Bankruptcy Court for the District of New Mexico ruled in favor of the Roman Catholic Church of the Archdiocese of Santa Fe (Archdiocese) granting a temporary injunction against the Small Business Administration (SBA) that had rejected the Archdiocese’s application for a Paycheck Protection Program (PPP) Loan under the CARES Act. The case sheds light on how courts may view other SBA rulemaking regarding eligibility for PPP Loans, including the recently announced requirement that PPP applicants and recipients first exhaust other sources of liquidity, or give back funds by May 14, 2020.

In 2018, the Archdiocese filed for Chapter 11 bankruptcy and had been operating as a debtor-in-possession. On March 23, 2020, in response to COVID-19 pandemic the New Mexico Department of Health issued a “stay-at-home” order, prohibiting mass gatherings and requiring all non-essential businesses to cease in-person operations. Due to the stay-at-home orders, the Archdiocese was losing about $300,000 a month in revenue it otherwise would realize from normal operations.

The economic hardship brought on by COVID-19 and the stay-at-home orders led the Archdiocese to file an application for a PPP Loan on April 20, 2020. Not long after the Archdiocese filed its application, the SBA issued a second interim final rule which purported to disqualify bankruptcy debtors from a PPP Loan.

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