June 29, 2020
June 22, 2020
- PPP Loan Forgiveness Application Forms Updated and Streamlined
- Nevada Division of Insurance to Disallow Policy Exclusions Related to COVID-19
- CDI Announces New Order Regarding Workers’ Compensation Premium Savings for CA Businesses Affected by COVID-19
june 15, 2020
june 10, 2020
- Note to the SBA: Debtors in Bankruptcy Are Eligible for PPP Loans
- California Modifies the Tolling of Statutes of Limitations in Civil Cases
june 8, 2020
- CCPA Enforcement Date Fast Approaching Regardless of COVID-19
- Hotels in California May Be Days Away From Reopening: What Hoteliers Need to Know
June 4, 2020
may 29, 2020
may 28, 2020
- House Introduces Pandemic Risk Insurance Act of 2020 in the Wake of COVID-19 Business Interruption Claims
may 27, 2020
- Hoteliers Beware: a Return to Business Post-Pandemic Brings With It Potential Legal Liability
- House Contemplates Revisions to the Paycheck Protection Program
may 15, 2020
may 14, 2020
- U.S. House Democrats Introduce HEROES Act, a New $3T Stimulus Package
- SAFE Banking Act for Cannabis-Related Businesses Included in the HEROES Act
may 12, 2020
may 8, 2020
- Treasury and the SBA Issue Guidance Regarding the Employee Retention Credit
- Businesses Reopen in Los Angeles County as Stage 2 of California’s Statewide Plan Begins
- Update: Large Employers Required to Pay Coronavirus-Related Sick Leave Under New L.A. County Ordinance
may 6, 2020
- SBA Extends PPP Certification Safe Harbor to May 14
- A 2008 Redux: IRS Provides Temporary Cash/Stock Dividend Relief for Publicly Offered REITs and RICs
- EPLI Insurance and Employee Benefits in the Age of the Coronavirus
may 5, 2020
- Update: PPP Guidance Issued by the SBA and U.S. Treasury at Odds With the CARES Act—Michelman & Robinson Files First-of-Its-Kind Lawsuit Challenging FAQs
- NAIC Issues Business Interruption Data Call in the Wake of COVID-19
may 4, 2020
- PPP Guidance Issued by the SBA and U.S. Treasury at Odds With the CARES Act—Michelman & Robinson Files First-of-Its-Kind Lawsuit Challenging FAQs
may 1, 2020
april 29, 2020
- Planning for Your Employees' Return to the Workplace
- Los Angeles Hospitality Workers Among Those Thrown a Potential Lifeline
april 24, 2020
- Attention Cannabis Businesses: Hope May Be on the Horizon for Federal COVID-19-Related Relief
- California Department of Insurance Issues Notice Granting Tax-Filing Extension in Response to COVID-19
- SEC Approves Amendments to Nasdaq and NYSE Continued Listing Requirements Due to the COVID-19 Pandemic
April 23, 2020
april 21, 2020
- Additional Funding Is on the Way to Resurrect the PPP
- Certifying Your PPP Loan: Proceed With Caution
april 17, 2020
april 16, 2020
- Employment in the Wake of Coronavirus: EEOC and OSHA Guidance Allows Employers to Go Where They Could Not Go Before
- New Yorkers Ordered to Stay at Home Even Longer Amid the COVID-19 Crisis
- Paycheck Protection Program Funds Exhausted
april 15, 2020
- Attention Insurers: the CDI Has Ordered You to Fairly Investigate All Business Interruption Insurance Claims Caused By the COVID-19 Outbreak
April 14, 2020
- Insurance Companies Have Been Ordered to Provide COVID-19-Related Premium Relief to Businesses and Drivers in California
- What to Do If Your New York Business Has Been Deemed Non-Essential
APRIL 13, 2020
- IP Deadlines and Fees Extended Under the CARES Act
- Employment in the Wake of Coronavirus: Reintegrating Your Workforce in the New Normal
APRIL 10, 2020
- You Successfully Applied for and Received a PPP Loan Under the CARES Act: Now What?
- Safer at Home Order in L.A. Extended to May 15
- Maintaining Your Trade Secrets During the Coronavirus Crisis
APRIL 9, 2020
april 8, 2020
- Congress Looks to Bolster the PPP With Another $250B in Funding
- U.S. Treasury Provides Further Guidance to PPP Borrowers and Lenders
- L.A. Mayor Amends COVID-19-Related Paid Sick Leave Ordinance
april 7, 2020
- Clarifying the Paycheck Protection Program: Payment of Insurance Premiums and Loan Forgiveness under the CARES Act
April 3, 2020
april 2, 2020
april 1, 2020
March 31, 2020
march 30, 2020
- Large Employers Required to Pay Coronavirus-Related Sick Leave Under New L.A. Ordinance
- Insurance Coverage Potentially Triggered by COVID-19
- Attention Insurers: CDI Orders Mandatory Call for Business Interruption Coverage Information in the Wake of COVID-19
- DOL Is Requiring Employers to Post Families First Employee Rights Notice
March 27, 2020
- A Comprehensive Guide to Understanding Coronavirus-Related State Assistance Programs: Who is Giving What to Whom (Part II)
- IRS Releases “People First Initiative” Temporarily Adjusting and Suspending Key Compliance Actions
- HHS Relaxing Enforcement of HIPAA to Facilitate Sharing of Information During the COVID-19 Crisis
March 26, 2020
march 25, 2020
march 24, 2020
- Navigating the Coronavirus Pandemic: a Critical Business Review Checklist
- SBA Loans for Companies Impacted by Coronavirus
- SEC Relaxes Federal Proxy Rules for Annual Meetings
march 23, 2020
- Federal Reserve Responds Boldly to Coronavirus-Related Economic Downturn
- The Number of Jurisdictions Implementing Stay-at-Home Orders Is Increasing Exponentially
- Michelman & Robinson’s Guide to Coronavirus-Related Paid Sick Leave and Unemployment Insurance Laws in the Tri-State Area
MARCH 21, 2020
- New Jersey Orders Its Residents to Stay Home
- “Essential Businesses”— What if I am Stopped?
- The IRS and States Provide Tax Relief in the Wake of the Coronavirus Pandemic
MARCH 20, 2020
- New York Governor’s PAUSE Order
- Illinois Governor’s Statewide Stay-at-Home Order
- Force Majeure Clauses in Commercial Real Estate Contracts
MARCH 19, 2020
- SEC Provides Regulatory Relief for Public Reporting Companies
- Student Loan Borrowers Can Breathe a Sigh of Relief, At Least Temporarily
- California Governor's Statewide Stay-At-Home Order
MARCH 18, 2020
- "Shelter in Place" Orders
- Telecommuting in the Age of Coronavirus
- Families First Coronavirus Response Act Just Passed by the Senate and Signed Into Law by the President
MARCH 17, 2020
- M&R Coronavirus Risk Mitigation Team: A Multi-Disciplinary Legal Team Ready To Immediately Address A Host Of Coronavirus-Related Issues for Businesses, Quickly And Holistically
MARCH 16, 2020
MARCH 5, 2020
PPP Guidance Issued by the SBA and U.S. Treasury at Odds With the CARES Act—Michelman & Robinson Files First-of-Its-Kind Lawsuit Challenging FAQs
Click here to read the lawsuit.
There continues to be significant backlash about the Paycheck Protection Program and loans being taken by not-so-small businesses like Ruth’s Hospitality Group (operator of the Ruth’s Chris Steak House chain), Auto Nation, and even the Los Angeles Lakers, which has put U.S. Treasury Secretary Steven Mnuchin on the defensive. On the heels of his recent comment that PPP borrowers improperly certifying their needs for relief under the CARES Act will suffer “severe consequences,” comes Mnuchin’s statement last week that, “for any loan over $2M, the Small Business Administration will be doing a full review of that loan before there is loan forgiveness.”
At its core, the PPP is geared toward small businesses hit hard by the COVID-19 outbreak—those needing short-term money to stay afloat, retain their workforces, and pay for payroll, benefits, rent, and utilities. Clearly then, to the extent PPP loans are winding up in the wrong hands (read: big public companies with substantial liquidity and access to capital), there are problems with the program that must be ironed out.
That being said, Mnuchin’s threats and guidance issued by the SBA in consultation with Treasury regarding PPP certification (in the form of Frequently Asked Questions that Michelman & Robinson previously discussed here), have raised some glaring contradictions with the language of the CARES Act itself. They have also resulted in a lawsuit that M&R filed today (May 4, 2020) against Mnuchin and Treasury, as well as the SBA and its administrator, Jovita Carranza.
A description of the case is set forth below; but first, M&R answers some of the questions we are being asked about the so-called “credit elsewhere test” and the FAQs/guidance from Treasury and the SBA that are at the heart of our clients’ action against Mnuchin, et al.
Q. How does the SBA’s “credit elsewhere test” apply to PPP loans?
A. The short answer is it does not apply. Let us begin with a bit of background.
Ordinarily, to qualify for an SBA loan, a small business loan applicant must pass the “credit elsewhere test,” which analyzes whether the would-be borrower has the ability to obtain some (or all) of the requested loan funds from alternative sources without causing undue hardship. More specifically, the lender must determine that the applicant is unable to get a similar loan on reasonable terms without a federal government guaranty, and that some (or all) of the loan is not available from the resources of the applicant or the personal resources of the applicant’s principals. Toward that end, as part of the “credit elsewhere test,” SBA requires that the personal resources of any owner of 20% or more of the applicant be reviewed.
There is more to the “credit elsewhere test,” but the foregoing is sufficient for purposes of this discussion. That is because the CARES Act, which provides for the PPP, specifically waives the requirement that a PPP borrower demonstrate its inability to obtain credit elsewhere. As such, the SBA’s “credit elsewhere test” has no application to PPP loans, at least not if the express language of the CARES Act is taken into account.
Q. Can the FAQs/guidance from Treasury and the SBA about PPP certification and Secretary Mnuchin‘s related comments co-exist with the mandates of the CARES Act?
A. That remains to be seen, but pursuant to the lawsuit filed today, we believe the answer should be no. The FAQs/guidance regarding PPP certification specifically acknowledge that the CARES Act “suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act).” Yet they go on to say that borrowers must nevertheless certify in good faith that their PPP loan request is necessary, and that certification must take into account the “ability to access other sources of liquidity sufficient to support . . . ongoing operations in a manner that is not significantly detrimental to the business.”
There is obvious tension between these two competing ideas—that the “credit elsewhere test” is waived, on the one hand, and that borrowers must certify their inability to access other sources of liquidity (essentially, a “credit elsewhere test”), on the other. As set forth in our case against Mnuchin and his fellow defendants, as a rule, statutory language trumps departmental guidance, which means that Treasury and the SBA must be enjoined from making determinations of PPP ineligibility based upon new loan requirements imposed by way of the guidance/FAQs.
Q. Does a business owned by a large company with adequate sources of liquidity to support the subsidiary’s ongoing operations qualify for a PPP loan?
A. As we have previously reported, in addition to reviewing applicable affiliation rules to determine PPP eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. By way of its guidance, Treasury has essentially taken the position that businesses owned by private companies with adequate sources of liquidity to support the business’s ongoing operations are not eligible for PPP funding. But again, a consideration of otherwise available credit is not supposed to factor into a borrower’s PPP loan eligibility. Thus arguably, a business may qualify for a PPP loan even if owned by a large company, but given the conflict between the language of the CARES Act and the guidance/FAQs issued by Treasury and the SBA, the jury is still out when it comes to this question. Hopefully, the litigation initiated today will settle the issue.
Q. Will the SBA actually be reviewing individual PPP loans in excess of $2M as Secretary Mnuchin has indicated?
A. Yes, as set forth in guidance issued by Treasury last week, the SBA has decided, in consultation with Treasury, that it will, in fact, review all PPP loans that are over $2M million, in addition to other loans as appropriate. Each review will follow a lender’s submission of its borrower’s loan forgiveness application.
As we understand it, additional guidance implementing this procedure will be forthcoming. In the meantime, the outcome of the SBA’s review of loan files will not affect its guarantee of any loan otherwise in compliance with PPP rules.
Q. What is alleged in the lawsuit filed against Mnuchin, Treasury and the SBA?
A. The lawsuit has been filed in the United States District Court, Central District of California, on behalf of three privately held tech companies. Big picture: our clients seeks to nullify the guidance/FAQs issued by the SBA in tandem with Treasury that ostensibly reimposes the “credit elsewhere test” as a criteria for PPP loans.
In the complaint, it is alleged that the guidance/FAQs (specifically, numbers 31 and 37) place new requirements upon PPP borrowers that are not in accordance with the CARES Act, and thus, the guidance/FAQs are contrary to law. By way of the litigation, our clients are asking for an injunction to stop Treasury and the SBA from making determinations of PPP ineligibility based upon the guidance imposed by the FAQs, as well as a declaration from the federal court that FAQs 31 and 37 are unlawful and must be withdrawn.
A description of the action can also be found in this press release.
We are working diligently to keep our clients up to date on coronavirus-related developments. Nevertheless, these developments are changing daily and, in some cases even hourly, so it is important that you make sure you are dealing with the most current information. That being said, this alert is not offered, and should not be relied on, as legal advice. You should consult an attorney for guidance and counsel regarding any specific concern or situation.