New Mexico Court Orders SBA to Make PPP Funds Available to Chapter 11 Debtor

Today the Bankruptcy Court in New Mexico (In re Roman Catholic Church of the Archdiocese of Santa Fe, 18-13027 (Bankr. D. N.M.) ordered the SBA to make PPP funds available to a chapter 11 debtor and stated that if the debtor does not get the funds, the court will entertain an adversary proceeding against the SBA for compensatory and punitive damages.

The decision from the New Mexico court comes on the heels of a contrary decision in the Cosi bankruptcy case earlier this week, when the Delaware bankruptcy court ruled that it could not force the SBA to make PPP funds available to a chapter 11 debtor.

Some of the specific findings of the New Mexico Court include:

The Court finds that Defendant’s decision to exclude bankruptcy debtors from the PPP is arbitrary and capricious. While a borrower’s bankruptcy status clearly is relevant for a normal loan program, the PPP is the opposite of that. It is not a loan program at all. It is a grant or support program. The statute’s eligibility requirements do not include creditworthiness. Quite the contrary, the CARES Act makes PPP money available regardless of financial distress. Financial distress is presumed. Given the effect of the lockdown, many, perhaps most, applicants would not be able to repay their PPP loans. They don’t have to, because the “loans” are really grants. Repayment is not a significant part of the program. That is why Congress did not include creditworthiness as a requirement.

Defendant’s inexplicable and highhanded decision to rewrite the PPP’s eligibility requirements in this way was arbitrary and capricious, beyond its statutory authority, and in violation of 11 U.S.C. § 525(a). By a separate final judgment, the Court will grant Plaintiff the relief it requests. If Defendant’s actions result in Plaintiff not obtaining the $900,000 it requested, Plaintiff may file an adversary proceeding for compensatory and, if appropriate, punitive damages.