Bankrupt hospitals aren't eligible for Paycheck Protection Program loans under the Coronavirus Aid, Relief and Economic Security Act, a U.S. appeals court ruled June 22.
Under the CARES Act, Congress allocated $659 billion in loans for small businesses through the PPP. The program is implemented under the Small Business Act, which has said bankrupt applicants aren't eligible for PPP loans.
The ruling stems from an allegation made by Hidalgo County Emergency Service Foundation, a hospital in Edinburg, Texas, that it was denied a PPP loan because it is in Chapter 11 bankruptcy. According to the Court of Appeals for the Fifth Circuit, the hospital contended that the SBA's decision to preclude bankrupt parties from getting PPP loans violates law that prohibits discrimination based on bankruptcy status.
While a bankruptcy court sided with Hidalgo and issued a preliminary injunction that required the SBA to handle Hidalgo's PPP application, a district court stayed the preliminary injunction and certified the case for direct appeal to the Fifth Circuit, which ultimately vacated the preliminary injunction.
"The issue at hand is not the validity or wisdom of the PPP regulations and related statutes, but the ability of a court to enjoin the [SBA] administrator, whether in regard to the PPP or any other circumstance. Because, under well-established Fifth Circuit law, the bankruptcy court exceeded its authority when it issued an injunction against the SBA Administrator, we vacate its preliminary injunction."
Read the full ruling here.
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