Your PPP Lender Says You Were Ineligible for Your PPP Loan – Now What?

Calculator, paper and pen

If your Paycheck Protection Program (PPP) lender has informed you that you were not eligible for the PPP loan that you received, you should be aware of the potential consequences of this determination if it goes unchallenged.

What’s at Stake?

Although this area of PPP law is currently developing and comes with a lot uncertainty, here are three of the most likely consequences:

  1. The Small Business Administration (SBA) has made clear that no portion of a PPP loan made to an ineligible borrower may be forgiven. If you have already spent all of the PPP loan proceeds, you will be required to repay the entire loan unless you are able to resolve this issue with the lender. If you have not yet spent all of the loan proceeds, then you might want to consider putting a hold on using the PPP loan proceeds until you (hopefully) are able to come to a resolution with your lender.

 

  1. Your lender’s understanding that you are ineligible may be construed as a default on your PPP loan, the loan may be accelerated, and the entire amount of the loan would become immediately due and payable. Unlike other non-PPP loans, your PPP loan promissory note might not require your lender to provide notice of these actions. This leaves open the possibility of your lender suing you, without being provided an opportunity to contest its determination that you were ineligible for the PPP loan.

 

  1. The lender might take the position that if you were not eligible for the loan in the first place, how could any use of the PPP loan proceeds be for an authorized purpose? Under the PPP and all applicable SBA rules, proceeds may only be used for PPP loan authorized purposes. If the lender believes it was tricked into making a PPP loan that it should not have made, it may refer the matter to be reviewed by the SBA. The SBA has issued Interim Final Rules (IFRs) that state that if you knowingly misuse PPP loan proceeds, the SBA might not only direct you to repay the funds that were misused, but it may also pursue any owner of the business through a civil action and/or potentially direct the United States Department of Justice to start a criminal PPP loan fraud investigation.

What Can Cause This?

Since the PPP generally allow lenders to rely on the certifications made by borrowers in their PPP loan applications to determine whether the borrowers are eligible, it is most likely that your eligibility issue is tied to one of the certifications made in your PPP loan application. Over time, the required certifications have changed, and the PPP loan application forms have even been revised to resolve certain ambiguities. Understanding how the PPP loan application process has evolved is crucial to being able to effectively contest your PPP lender’s determination.

What Can You Do?

Although PPP loans are unique in many ways, in the end, PPP loans are just unsecured business loans. The PPP does not grant PPP lenders any specific powers beyond those generally recognized under state law. This means that you, as a PPP loan borrower, similarly have all of the same tools available under state law to contest a pending lawsuit commenced by your PPP lender against you or to commence your own action against the PPP lender in order to seek a court order finding that you were eligible for the PPP loan and/or that you have not defaulted on your PPP loan. You may also be able to request that the SBA review the lender’s determination if it is part of a decision denying PPP loan forgiveness.

Take Action

If you have questions or concerns regarding the Paycheck Protection Program or how to navigate a dispute with your PPP lender regarding loan eligibility, please contact Matthew M. Zapala, Esq., by e-mail (mzapala@nhkllp.com) or phone (518.432.3133) for a no-cost consultation to see how Nolan Heller Kauffman LLP may be able to assist you.

PPP Loans & Bankruptcy: SBA Issues New Guidance

Earlier this month, the Small Business Administration (SBA) issued new guidance regarding the Paycheck Protection Program (PPP) and bankruptcy. When Congress passed the CARES Act, it did so without any statutory limitation on lending to businesses that were involved in bankruptcy proceedings. However, shortly after the PPP was first implemented, the SBA issued Interim Final Rules that prohibited a PPP loan from being made if the applicant, or any owner of 20% or more of the applicant, was “presently involved in a bankruptcy proceeding.” Prior to the SBA’s new guidance, it was safe to construe the phrase “presently involved in any bankruptcy” to mean that you are ineligible for a PPP loan as long as the applicant or owner is a debtor in a bankruptcy case that is open. Since bankruptcy cases may take years to close, this rule effectively prevented the vast majority of applicants that, directly or indirectly through an owner, had an open bankruptcy case.

For this reason, a number of entities with PPP loans that are involved in Chapter 11 bankruptcy proceedings have successfully challenged the SBA’s authority to enact this regulation. However, the results have been mixed in federal courts across the country and it appears that a majority of courts have concluded that the SBA had the authority to instill this prohibition even though it is completely contrary to the primary intent of the PPP – to get forgivable loans into the hands of America’s struggling small businesses quickly and efficiently.

Recently, the SBA released a more detailed explanation of what it means to be “presently involved in a bankruptcy proceeding” that opens the door to many borrowers that would have previously been ineligible because of how long bankruptcy cases can remain “open”. Understanding this guidance is critical to determining when, and if, your business is eligible to receive an U.S. Small Business Administration Paycheck Protection Program (PPP) loan and how you might be able to use a PPP loan to assist with your efforts to reorganize, despite certain bankruptcy proceedings.

PPP Loan Bankruptcy Guidance by Chapter:

The SBA’s PPP loans and bankruptcy guidance can be broken down by the Chapter and type of bankruptcy case:

Chapter 7

For Chapter 7 bankruptcy filings and PPP loans, “the applicant or owner is considered to be ‘presently involved in any bankruptcy’ for PPP eligibility purposes until the Bankruptcy Court has entered a discharge order in the case.”

Chapters 11, 12, or 13

For Chapter 11, 12 or 13 bankruptcy and PPP loans, “the applicant or owner is considered to be ‘presently involved in any bankruptcy’ for PPP eligibility purposes until the Bankruptcy Court has entered an order confirming the plan in the case.”

Dismissed Case

“Additionally, if the Bankruptcy Court has entered an order dismissing the case, regardless of the Chapter, the applicant or owner is no longer “presently involved in any bankruptcy.”

Understanding The Guidance

This PPP bankruptcy loan guidance represents a drastic departure from the SBA’s prior interpretation. For example, a Chapter 13 bankruptcy case may remain open and active for four to five years after an order confirming the plan is entered. Now, an individual who has a confirmed chapter 13 plan, or a business owned which they own, is eligible as soon as the order confirming the plan is entered – they no longer have to wait until the case is closed.

Additionally, this clarification from the SBA presents a new source of potential funding in Chapter 11 cases in order to increase the chances of being able to successfully emerge from Chapter 11. Now, it is conceivable that businesses in pending Chapter 11 cases, or those contemplating potential reorganizations, may be able to propose reorganization plans that, at least in part, provide for obtaining PPP loans after a confirmation order is entered to help fund their plans and increase the likelihood of completing successful reorganizations.

Take Action

If you have questions or concerns regarding the Paycheck Protection Program or how PPP loans might be utilized as part of a Chapter 11 bankruptcy reorganization, please contact Matthew M. Zapala, Esq., by email (mzapala@nhkllp.com) or phone (518.432.3133) for a no-cost consultation to see how Nolan Heller Kauffman LLP may be able to assist you.

New York City Property Value Declines Also Expected in Upstate Markets

New York City through Fence

The January 2021 New York City annual report of the City’s real property tax base shows expected COVID-related hits across the spectrum. Retail buildings and hotels/motels registered a market value decline of 21.1% and 22.4%, respectively. Office buildings experienced a decline of 15.6% in market values.[1]

Although the New York City real estate market differs from Upstate New York, some of the same forces that hit these sectors there are clearly at work in Upstate New York as well. Owners and investors in Upstate New York real estate markets may find that 2021 is an opportune time to look closely at their property assessments. In New York, assessed values are set based on a theoretical value in the prior calendar year, making 2021 a great year to challenge an assessment based on devaluation in 2020. The deadline to challenge your real property tax assessment for most jurisdictions in Upstate New York is May 25, 2021 (best to confirm with your local assessor).

Are you wondering how to lower your property tax assessment? Nolan Heller Kauffman can help. Our attorneys stand ready to assist new and existing clients during these uncertain times. We are happy to provide a fee-free initial consultation to evaluate whether you may have a good case for a property tax assessment reduction. If you feel you have an Upstate New York property tax assessment that is out of line with market values, please contact John Hartzell at Nolan Heller Kauffman LLP at (518) 432-3106, or jhartzell@nhkllp.com.

[1] New York City Department of Finance Press Release 1-15-21

 

 

 

 

 

 

 

Important MLMIC Demutualization and Sale Update: On December 9, 2020, the Appellate Division, Second Department issued its decision in Maple Medical v. Scott, joining the Third and Fourth Departments in ruling in favor of MLMIC Policyholders in Disputes over MLMIC Conversion Payouts.

On October 1, 2018, Medical Liability Mutual Insurance Company (“MLMIC”) was converted from a mutual insurance company to a stock company and sold to Berkshire Hathaway for $2.502 billion in cash consideration. Following MLMIC’s sale, litigation ensued throughout New York State between healthcare providers and their employers or former employers over which of them was entitled to receive the cash proceeds of sale:  (i) the employees/healthcare providers, who became MLMIC policyholders—and thereby acquired an ownership interest in MLMIC—as part of the bargained-for exchange of consideration under their employment agreements; or (ii) their employers, who paid the MLMIC premiums pursuant to, and in exchange for their employees’ services under, the employment agreements.

On December 9, 2020, the Appellate Division, Second Department issued its decision in Maple Medical, LLP v. Joseph Scott, et al., 2020 NY Slip Op 07366 (2d Dep’t Dec. 9, 2020), ruling that the employees/policyholders are entitled to the MLMIC proceeds. In its Decision, the Second Department expressed its agreement with the Third and Fourth Departments’ decisions in Top of Form

Schoch v. Lake Champlain OB-GYN, P.C., 184 A.D.3d 338 (3d Dep’t June 18, 2020); Shoback v. Broome Obstetrics & Gynecology, P.C., 184 A.D.3d 1000 (3d Dep’t June 18, 2020); and Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984 (4th Dep’t 2020);Bottom of Form and rejected the First Department’s contrary holding in Matter of Schaffer, Schonholz & Drossman, LLP v. Title, 171 A.D.3d 465 (1st Dep’t 2019).

With the Maple Medical decision, the Second, Third and Fourth Departments have all ruled that the Policyholders are entitled to the MLMIC payout, leaving only the First Department’s decision in Schaffer supporting claims by employers to MLMIC funds.  Notably, each of the other Departments have expressly rejected SchafferSee, e.g., Maple Medical (“We do not agree with our colleagues in the First Department”).

Uniformity throughout New York State is likely to come in the first half of 2021.  In early 2021, the First Department is expected to hear oral argument in Mid-Manhattan Physician Services, P.C. v. Dworkin, 2019 WL 4261348 (Sup Ct, New York County 2019).  Given the well-reasoned analyses in the decisions of the other Departments, we expect that the Frist Department will give serious consideration to reversing its earlier decision in Schaffer.

In addition, the New York Court of Appeals will be hearing an appeal of the Third Department’s decision in Schoch.  The Court is expected to hear argument in the Spring of 2021.  An earlier decision from the First Department in Dworkin in favor of the Policyholder would likely render this appeal moot.

Nolan Heller Kauffman LLP represents more than 100 healthcare professionals in over 50 cases throughout New York State relating to disputes over MLMIC cash consideration, including those in Schoch, Shoback, Maple Medical and Dworkin.  If you are or were a MLMIC policyholder and have questions, or would like to learn more about this subject,  please contact Justin A. Heller, Esq. at jheller@nhkllp.com or Alexandra B. Becker, Esq. at abecker@nhkllp.com, or call us at (518) 449-3300.

Nolan Heller Kauffman LLP is a preeminent, award-winning business law firm with offices in Albany and Syracuse, New York, and serving clients throughout New York State.

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3 Nolan Heller Kauffman Attorneys Named to 2020 Super Lawyers®

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We are proud to announce that 2020 New York Super Lawyers Upstate Edition has recognized three Nolan Heller Kauffman LLP attorneys.

The Top 5% of Attorneys in Upstate NY Receive Super Lawyers Recognition

Super Lawyers is a rating service of outstanding lawyers, from more than 70 practice areas, who have attained a high degree of professional achievement and peer recognition. The rigorous candidate selection process includes independent research, peer nominations and peer evaluations. Only the top 5% of attorneys in Upstate New York receive this yearly Super Lawyers recognition.

Learn More About Nolan Heller Kauffman

Founded in 1964, Nolan Heller Kauffman is a preeminent award winning business law firm providing a full range of legal services in business and commercial matters. Its clients include publicly traded and privately held companies, financial institutions, commercial real estate owners and developers, contractors, entrepreneurs and startups, municipalities and state government agencies.

New York State Liquor Authority Updates: New Rules & Enforcement due to COVID-19

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The attorneys at Nolan Heller Kauffman LLP understand that many businesses in the hospitality industry have been negatively impacted by COVID-19. We are here to help you navigate both the financial and regulatory compliance aspect of keeping your business during this difficult time.

If your New York licensed business has been charged with violations of the COVID-19 or other regulations, or if you are interested in ensuring that your business is fully compliant with these regulations and with the terms of your license, please contact Alexandra B. Becker, Esq. by email (abecker@nhkllp.com) or phone (518.432.3188).

Task Force Crackdown:

On July 23, 2020, Governor Cuomo announced a new multi-agency New York State task force to enforce COVID-19-related regulations at licensed establishments, including bars and restaurants. The task force is led by the New York State Police and New York State Liquor Authority (“SLA”) Chairman Vincent Bradley and will include investigators from:

The goal of the task force is to ensure that all licensed establishments are fully complying with the State’s rules regarding COVID-19, including but not limited to enforcement of social distancing measures, proper use of face coverings, and the prohibition on indoor dining and alcohol consumption (for the New York City area).

Licensed establishments found in violation of COVID-19 regulations face fines up to $10,000 per violation. Egregious violations may result in the immediate suspension of a bar or restaurant’s liquor license.

Between July 21 and 23, the task force conducted over 1,000 compliance checks, which resulted in documented violations at 84 establishments, and 10 liquor licenses being suspended. Between July 25 and 26, the task force conducted over 1,300 additional compliance checks, documenting violations at 132 establishments, leading to 12 further summary suspensions. An additional 644 compliance checks were completed Monday night, with investigators observing 26 violations in New York City.

Since the start of the pandemic, the New York State Liquor Authority has brought 443 charges against licensees statewide and imposed 33 Emergency Orders of Suspension, immediately closing establishments in order to protect public health and safety. A frequently updated list of licensees who have been charged and/or summarily suspended is posted on the New York State Liquor Authority’s website: www.sla.ny.gov.

NYS Liquor License Food Requirements:

Pursuant to Executive Order 202.52, effective Friday July 17, 2020, all licensed establishments with on-premises privileges (e.g. restaurants, taverns, manufacturers with tasting rooms, etc.) cannot serve alcoholic beverages unless such alcoholic beverage is accompanied by the purchase of a food item which is consistent with the food availability requirement of the license under the Alcoholic Beverage Control Law.

Under normal (pre-COVID-19) circumstances, any on-premises licensee is required to have some degree of food available for purchase at their premises. The type of food required is dependent on the type of license. Restaurants have the most extensive food requirements, and must offer “meals”, defined as “ the usual assortment of foods commonly ordered at various hours of the day”. Taverns and manufacturers with tasting rooms are permitted to offer a more limited scope of food options. Under pre-COVID rules, all licensees were required to have food available, but patrons were not required to purchase food in conjunction with a purchase of alcohol.

The Executive Order is aimed at permitting outside and limited indoor dining (outside of New York City and Long Island), with alcoholic beverages, while restricting the congregating and mingling that arise in a bar service/drinking only environment. The Order provides : “for each patron in a seated party, an item of food must be purchased at the same time as the purchase of the initial alcoholic beverage(s) . . . However, one or more shareable food item(s) may be purchased, so long as it/they would sufficiently serve the number of people in the party and each item would individually meet the food standard below.”

The New York State Liquor Authority has provided additional guidance as to the standards of food required:

For Manufacturers with On-Premises Service Privileges: sandwiches, soups or other such foods, whether fresh, processed, pre-cooked or frozen; and/or food items intended to compliment the tasting of alcoholic beverages, which shall mean a diversified selection of food that is ordinarily consumed without the use of tableware and can be conveniently consumed, including but not limited to: cheese, fruits, vegetables, chocolates, breads, mustards and crackers.

For On-Premises Retailers with a Food Availability Requirement, Including Restaurants and Taverns: sandwiches, soups or other foods, whether fresh, processed, precooked or frozen.

The guidance further clarifies that for restaurants and taverns, “other foods” are “foods similar in quality and substance to sandwiches and soups; for example, salads, wings, or hotdogs” are considered acceptable’ whereas; “a bag of chips bowl of nuts, or candy alone are not.” Further, that dessert-type items can satisfy this requirement, as long as it is a “substantial item, such as a piece of cake/pie, an ice cream sundae, etc.” as opposed to a “drink with whip cream, a cookie, a piece of candy, etc.”

Patrons are not required to purchase a food item with each alcoholic beverage purchase. So long as food is ordered at the time of initial order of any alcoholic beverages that is sufficient in substance and is also of a quantity sufficient to serve the number of patrons who are present and being served alcohol.

Ongoing Efforts to Mitigate COVID-19 Impact on Licensees:

On March 16, 2020, in response to the COVID-19 crisis, Governor Cuomo issued a statewide mandate that restaurants operate only for takeout and delivery, causing many of those businesses to experience huge losses of revenue. In order to help those impacted businesses, the New York State Liquor Authority issued a series of directives aimed to ease the restrictions on operations and financial obligations of businesses licensed to serve alcohol.

Normally, on-premises licensees (restaurants, bars, taverns, clubs, arenas, catering establishments, etc.) are only permitted to sell alcohol for consumption on their licensed premises, with the exception of takeout beer. In order to boost revenues, the SLA is temporarily allowing on-premises licensees to sell wine and spirits- in addition to beer- by the bottle for takeout and delivery in conjunction with a food sale. The sale of mixed drinks for takeout or delivery in conjunction with a food sale is also permitted so long as they are in closed containers consistent with any open container ordinance. Licensees do not need to obtain any waiver or permission from the SLA in order to make such sales. These off-premises sales privileges have been extended multiple times, and currently run through August 5, 2020.

The New York State Liquor Authority has also extended its deferment of liquor license renewal fees through August 31, 2020, which will allow on-premises licensees, wholesalers, and manufacturers with licenses expiring between March 31, 2020 and July 31, 2020 to defer the submission of renewal payments until August 31, 2020. Licensees are still required to file their applications prior to their expiration date, despite not having to submit a renewal payment.

Each of these Advisories and temporary procedures are subject to further changes and/or extensions as the State Liquor Authority continues to evaluate the scope and status of the COVID-19 crisis and its impact on New York State licensed businesses.

The New York State Liquor Authority is continuing to process and review applications during this time, though Full Board Meetings are not open to the public. Any presentation in support or opposition of licensing and miscellaneous matters must be submitted via email by the date set forth in the notice (as is the current practice) and no appearances or other submissions will be permitted. All licensing applicants can request to have their application held in abeyance until normal Full Board Meetings resume.

How We Can Help:

We appreciate that maintaining compliance with the requirements of your liquor license, as well as with the ever-evolving COVID-19 restrictions is extremely difficult, and urge you to contact us to see how we may be able to assist you. Please contact Alexandra B. Becker, Esq. by email (abecker@nhkllp.com) or phone (518.432.3188).

An Important Update on MLMIC Demutualization

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Momentum is building for MLMIC Policyholders in disputes over MLMIC Conversion Proceeds. The Appellate Division Third Department’s June 18, 2020 decisions in Schoch and Shoback are major victories for policyholders across New York State.

We previously reported that on April 24, 2020, the Appellate Division Fourth Department issued its decision in Maple-Gate Anesthesiologists, P.C. v. Nasrin, 182 A.D.3d 984 (4th Dep’t Apr. 24, 2020) (“Maple-Gate”), creating a split of authority with an earlier appellate decision of the First Department in Matter of Schaffer, Schonholz & Drossman, LLP v. Title (171 A.D.3d 465 [1st Dep’t 2019]) (“Schaffer”). We recently described the Maple-Gate decision, which held that the NY Insurance Law and MLMIC Plan of Conversion entitled the policyholders to the Cash Consideration, and that “as a matter of law . . . [the employer] had no legal or equitable right of ownership to the demutualization payments,” as a major victory for policyholders.

Appellate Division, Third Department Victory

Policyholders obtained another major victory when, on June 18, 2020, the Appellate Division for the Third Department issued its decisions in Schoch v. Lake Champlain OB-GYN, P.C., 2020 NY Slip Op 03444 (3d Dep’t June 18, 2020) and Shoback v. Broome Obstetrics & Gynecology, P.C., 2020 NY Slip Op 03447 (3d Dep’t June 18, 2020), in which the court provided a detailed analysis and discussion of the issues, and, like the Fourth Department, ruled in favor of the policyholders. These decisions are particularly noteworthy because (a) the court discussed and then rejected virtually all of the arguments made by employers in cases pending throughout the state, and (b) expressly rejected the Appellate Division First Department’s holding in Schaffer.

Together, the Appellate Division Third and Fourth Department decisions represent a tidal shift in momentum in MLMIC demutualization litigation. Schaffer can no longer be viewed as binding authority outside the Appellate Division First Department, and Schoch/Shoback and Maple-Gate will be binding authority within the Third and Fourth Departments, respectively. In addition, we are hopeful these recent decisions will be highly persuasive to the Appellate Division Second Department in appeals we have pending there, and in a pending appeal before the Appellate Division First Department, in which we are asking the court to reverse its prior decision in Schaffer.

Next Steps

Nolan Heller Kauffman LLP represents more than 100 healthcare professionals in over 50 cases throughout New York State relating to disputes over MLMIC cash consideration. If you are or were a MLMIC policyholder and have questions, or would like to learn more about this subject, please contact Justin A. Heller, Esq. at jheller@nhkllp.com or Alexandra B. Becker, Esq. at abecker@nhkllp.com, or call us at (518) 449-3300.

Nolan Heller Kauffman LLP is a preeminent, award-winning business law firm with offices in Albany and Syracuse, New York, and serving clients throughout New York State.

 

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Real Property Tax Assessment Grievance Day Deadlines Extended In Some Jurisdictions

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Deadlines Extended

Governor Cuomo’s Executive Order 202.22 allows taxing jurisdictions the option to extend the deadline to challenge property tax assessments for 2020. Several jurisdictions in the Capital Region of New York have elected to extend their tax grievance deadline, including the following:

  • Town of Colonie
  • Town of Guilderland
  • City of Albany

Depending on where your property is located, you may still have time to file a tax grievance for 2020.

To find our whether you still have time to challenge your tax assessment this year, please contact John V. Hartzell at jhartzell@nhkllp.com, or call (518) 432-3106.

Nolan Heller Kauffman Attorneys Can Help Albany Area Businesses Evaluate and Navigate the Bankruptcy Process In These Uncertain Economic Times

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Effects from the unprecedented closure of all non-essential businesses as a result of Governor Cuomo’s executive orders, intended to slow the spread of COVID-19, are being experienced by businesses throughout the Albany area and Upstate New York.  Real estate development, manufacturing, construction, hospitality, restaurants, and a host of other retail and wholesale businesses have been shut down and business owners are feeling the impact on cash flow, with many struggling to maintain payments to creditors while attempting to provide income to affected employees.  These effects will likely continue for many businesses even as they begin to reopen after the restrictions are eventually eased.

Many lenders are working with their customers to extend payment terms during this initial period of disruption while business loan programs provided for or enhanced under the federal CARES Act (Coronavirus Aid, Relief, and Economic Security Act) are rolled out to borrowers.  While some borrowers will be able to resume operating when the economy reopens or will find the necessary relief in government-backed loan programs, others will be more challenged because of financial issues that pre-dated the pandemic or because of lingering effects of the shut-down of the economy on their particular businesses. For these businesses, it may be advisable to consider bankruptcy options.

Recent bankruptcy legislation, along with several bankruptcy-specific provisions of the recently enacted CARES Act, may help businesses in Upstate New York and elsewhere recover from this period of economic and financial uncertainty.

Chapter 11 for Small Businesses

The Small Business Reorganization Act (the “SBRA”) took effect on February 19, 2020, adding Subchapter V to the Chapter 11 provisions of the Bankruptcy Code, with the intent to provide a more streamlined process for small businesses to reorganize their debts.  Prior to enactment of the SBRA, businesses facing financial difficulties and attempting to reorganize under Chapter 11 had to contend with rules and processes often more suited to larger business concerns, such that a company with only one or a few shareholders or members and a small number of employees had to contend with the same statutory requirements as American Airlines or General Motors.  While several amendments to the Bankruptcy Code over the years attempted to address this disparity, none were as far-reaching as the SBRA.

Specifically, for certain debtors with less than $2,725,625.00 in debt, the statute eliminated certain burdensome documents previously required to be prepared and filed with the Bankruptcy Court to propose a plan for payment to creditors and shortened the time period to file that plan with the Court.  Similarly, small business debtors will not face the prospect of having a committee of unsecured creditors appointed in their cases and are not obligated to pay quarterly fees to the Office of the United States Trustee.  These changes were intended to reduce the cost of reorganization to qualifying small business debtors and streamline the process to approve a plan for payment to creditors.

The elimination of rules requiring the consent of at least one class of creditors to a payment plan and prohibiting the company’s owners from retaining ownership unless they invested new money make Chapter 11 a more viable and attractive option for many business owners.  Small business plans can propose repayment of a portion of debts over a period of three to five years, with debtors receiving a discharge of amounts unpaid either at the time the plan is approved or at the conclusion of the payment plan term.

Business owners who borrowed against the equity in their homes to finance their businesses can modify the terms of those mortgages, including reducing the interest rate, extending the maturity date or reducing the amount due based on the equity in the property securing the loan.  The statute also provides for the appointment of a Subchapter V trustee to assist with negotiations between a debtor and its creditors to attempt to reach agreement on a payment plan for creditors.

Amendments to the SBRA under the CARES Act

The CARES Act was enacted on March 27, 2020 in response to the outbreak of the COVID-19 virus and accompanying pandemic.  While the CARES Act enhanced or created a number of government-backed loans for small businesses, it also made several beneficial changes to Subchapter V of Chapter 11.  In particular, it increased the debt limit for eligible businesses to $7.5 million, which greatly expanded the pool of potential businesses eligible to utilize the streamlined and less costly procedures under Subchapter V.  At this point, the debt threshold reverts to the roughly $2.7 million limit one year from the enactment of the CARES Act.  Congress could make further adjustments to the debt limit,  but at this point that is not definite so businesses should not delay seeking advice on the efficacy of this relief on the assumption that the increase will be extended or made permanent.

Business owners who guaranteed some or all of a company’s debts and need to consider a personal bankruptcy filing also see some expanded relief under the CARES Act.  Funds received from governmental programs to replace lost income are not included in the calculation to determine eligibility for filing for relief under Chapter 7 or Chapter 13, or for calculating disposable monthly income to determine the amount of monthly Chapter 13 plan payments.

For business owners already in Chapter 13 and whose plans were confirmed prior to March 27, 2020 and who are experiencing material financial hardship directly or indirectly as a result of the COVID-19 pandemic, the CARES Act allows those plans to be modified to provide for payment terms of up to seven years from the date the first payment under the confirmed plan was due.  As with the increased debt limit under Subchapter V, these provisions revert to the pre-amendment terms of the statute one year after enactment of the CARES Act.

Conclusion

The wide-spread impact of the current economic shutdown will have long-term ramifications on businesses, even after restrictions on operating are eased or lifted.  Supply chains and consumer economic activity will likely be slow in returning to pre-COVID-19 levels for some time.  In turn, businesses throughout the Albany area and Upstate New York and across virtually all industries will experience the combined effects of extended interruption in business operations and reduced consumer demand.  The attorneys at Nolan Heller Kauffman have decades of experience assisting businesses in restructuring their operations and debt, including utilizing bankruptcy and non-bankruptcy options, and are available to discuss these alternatives and help guide you through these unprecedented economic times.  Please feel free to contact Justin A. Heller, Esq. by e-mail (jheller@nhkllp.com) or phone (518.432.3118) or Francis J. Brennan, Esq. by e-mail (fbrennan@nhkllp.com) or phone (518.432.3159) to learn more and discuss these options.

Has Your Bar or Restaurant Been Impacted by COVID-19?

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The attorneys at Nolan Heller Kauffman can help you explore options to keep your business operational and compliant with your bar and restaurant liquor licenses. We recognize that many businesses have been negatively impacted by the COVID-19 crisis and we are here to help.

Navigating the New SLA COVID-19 Guidance:

On March 16, 2020, in response to the COVID-19 crisis, Governor Cuomo issued a statewide mandate that restaurants operate only for takeout and delivery, causing many of those businesses to experience huge losses of revenue.  In order to help those impacted businesses, the New York State Liquor Authority (the “SLA”) issued a series of directives aimed to ease the restrictions on operations and financial obligations of businesses licensed to serve alcohol.

Normally, on-premises licensees (restaurants, bars, taverns, clubs, arenas, catering establishments, etc.) are only permitted to sell alcohol for consumption on their licensed premises, with the exception of takeout beer. In order to boost revenues, the SLA is temporarily allowing on-premises licensees to sell wine and spirits- in addition to bottled beer for takeout and delivery in conjunction with a food sale. The sale of mixed drinks for takeout or delivery in conjunction with a food sales is also permitted so long they are in closed containers consistent with an open container ordinance. Licensees do not need to obtain any waiver or permission from the SLA in order to make such sales.

The SLA has also acknowledged that retailers may have a larger inventory on hand than needed to meet their more limited current demand. Accordingly, on March 24, 2020, the SLA issued an Advisory allowing wholesalers and manufacturers to accept returns of certain products from retailers who no longer need them; a practice which under normal circumstances would not be permitted. Products purchased by a retailer from a wholesaler or manufacturer on or after March 1, 2020 may be returned to such wholesaler or manufacturer. Products purchased from a manufacturer on or before March 17, 2020 may be returned by the retailer to the manufacturer. While wholesalers and manufacturers are not required to accept returns, if they opt to do so, they must do so from all retailers who purchased a product, without regard to the amount of product the retailer wishes to return.

The Advisory also aims to ease requirements for licensees by immediately waiving the normal requirement that a licensee place their license in safekeeping during a temporary closure. This will make it much easier for restaurants to quickly resume their operations without having to retrieve their license from the SLA.

SLA Advisories on March 26, 2020:

On March 26, the SLA issued three subsequent Advisories. The first two address renewal of liquor license applications and allow licensees to submit Renewal applications for any licenses expiring on March 31, 2020 or April 30, 2020 without payment of the required renewal fees. If the renewal application is otherwise timely and complete, the licensee will be placed on State Administrative Procedure Act, or “SAPA” status and allowed to continue operating under such status until May 31, 2020, or until payment is made, whichever comes first.

Additionally, the normal requirement that 30-Day Notice forms for Renewal applications required within New York City) be submitted via mail is waived. Service can be made by email, provided that the municipality (usually a Community Board) will accept service of the notice by emails, and the applicant receives a response from the municipality acknowledging that it has received the notice. Computer-generated delivered or received messages are not sufficient.

The third Advisory pertains to penalties, and provides that beginning on March 24, 2020, the SLA Secretary’s Office will delay issuing “Notices of Disposition” which include demand for payment for any matter where the Full Board imposed a civil penalty. This will effectively give licensees who would otherwise be required to pay fines based on license violations an extension of time before the payment is demanded and due. The Advisory also states that the SLA will not impose the alternate penalty in any matter where the licensee has failed to submit timely payment of the civil penalty. Often, if a licensee fails to timely pay a fine, the alternate penalty is a bond claim and/or cancellation of the license. By this Advisory, the SLA is allowing businesses that have already had fines assessed against them a further extension of time to pay without incurring a more serious penalty.

Each of these Advisories and temporary procedures are subject to further changes and/or extensions as the SLA continues to evaluate the scope and status of the COVID-19 crisis and its impact on licensed businesses.

The SLA is continuing to process and review applications during this time, though Full Board Meetings are not open to the public. Any presentation in support or opposition of licensing and miscellaneous matters must be submitted via email by the date set forth in the notice (as is the current practice) and no other submissions and no appearances will be permitted. All licensing applicants can request to have their application held in abeyance until normal Full Board Meetings resume.

COVID-19 Relief Loan Programs:

There are a number of loan programs available to assist existing businesses, including but not limited to restaurants and bars, which have been impacted by COVID-19. The Small Business Administration (the “SBA”) is offering two different kinds of COVID-19 relief loans: the SBA Economic Injury Disaster Loans (“EIDL”) and the Paycheck Protection Program (“PPP”) under the CARES Act. Your business may qualify for one or both of these loans. Use the terms below to determine how each might be applicable to you and your business.

SBA EIDL Program:

Program parameters and use of funds:

  • Eligibility: Small businesses with 500 or fewer employers
  • Amount: Up to $2 million, including affiliate loans. The amount determined by SBA’s assessment of your business’s losses due to the COVID-19 crisis.
  • Interest rate: 3.75% fixed for small businesses and 2.75% for non-profit organizations
  • Term: 30 years
  • Use of funds: EIDL loans can only be used to alleviate economic injury as a result of the COVID-19 crisis. You can use the funds to pay fixed debts, payroll, accounts payable and other bills that you would have typically been able to pay had your business not been impacted. The funds from these loans cannot be used to replace lost sales, refinance long-term debt or to expand.
  • Notes: There is no prepayment penalty and there is a one-year deferment on the loan (interest will still accrue during this period.

Eligibility and requirements:

  • Open to a wide variety of impacted businesses, including hotels, recreational facilities, manufacturers, restaurants, retailers, and more.
  • Loans available to small businesses (and most non-profits) directly impacted by COVID-19, as well as those that offer services directly related to impacted businesses. Businesses likely to be harmed by general losses in their community are eligible.
  • Your business must be suffering economic losses due to COVID-19, and COVID-19 only.
  • Your personal credit history must be acceptable to SBA.
  • You must be able to demonstrate an ability to repay the loan.
  • Collateral is required for all loans over $25,000. If real estate is available, it must be pledged as collateral. If you do not have collateral to pledge, you will not be declined, however, you are required to pledge what collateral you do have available.
  • There is no cost to apply.
  • You do not have to take the loan if you are approved, so it is better to apply early, get approved, and then decide whether or not you need/want to take the loan.
  • You can request up to $10,000 in advance.
  • At this time, there is no loan forgiveness for an EIDL loan. If you received an EIDL loan, you could apply for a PPP loan, refinance the EIDL loan into a PPP loan and apply for forgiveness.

Program parameters and use of funds:

  • Eligibility: Small businesses that were in operation on Feb. 15, 2020, with 500 or fewer employees, as well as individuals who are either a sole proprietorship or an independent contractor.
  • Amount: Up to 250% of your business’s average monthly payroll costs (calculated as an avg. of payroll over the last 12 months), with a maximum of $10 million.
  • Interest rate: Fixed-rate at 0.5%.
  • Fees: None.
  • Term: 2 years; full deferment of principal and interest for six months.
  • Loan forgiveness: All or a portion of the loan may be forgiven if the business complies with fund usage rules.
  • Collateral: No collateral or personal guaranty requirements.
  • Use of funds:
    • Salaries, wages, payroll, independent contractors (1099), benefits, etc.;
    • Up to 25% of the money can be used for non-payroll related expenses and may qualify for forgiveness;
    • Interest on mortgages and other loans; and
    • Refinance of an SBA EIDL loan made after January 1, 2020.

Eligibility and requirements:

  • Business must have been operational on February 15, 2020.
  • Businesses must have employees who are paid salaries and payroll taxes or paid independent contractors as reported on Form 1099.
  • For-profit and non-profit small businesses are eligible.
  • Sole proprietorships, independent contractors, and other self-employed individuals are eligible.

The attorneys at Nolan Heller Kauffman would be happy to assist you with determining whether one or both of these programs are available to you. Our team can also help you continue to navigate SLA compliance in light of these new guidelines. If you have questions regarding the operation of your existing licensed business, and/or are contemplating applying for a new license, please contact Alexandra B. Becker, Esq. by e-mail (abecker@nhkllp.com) or phone (518.432.3188).