Amendments to Bankruptcy Code Included in New Stimulus Package
January 19, 2021
The recently enacted Consolidated Appropriations Act amends certain provisions of the U.S. Bankruptcy Code that will provide additional relief and protections for small businesses and individuals that have been impacted by the COVID-19 pandemic, as well as landlords and suppliers. Most of these amendments, however, are temporary and will expire after either one or two years unless extended.
Some of the key amendments include:
PPP Loans for Corporate Debtors
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), enacted in March, 2020, established the Paycheck Protection Program (PPP) which offered forgivable loans to qualifying small businesses. Initially, the Small Business Administration (SBA) refused to issue PPP loans to debtors, but under the amendments to Section 364 of the Code corporate debtors may be eligible for PPP loans with the authorization of the bankruptcy court. However, this amendment will not become effective unless and until the SBA Administrator submits a letter to the Office of the United States Trustee acknowledging that debtors qualify for CARES Act funding. Assuming the SBA Administrator permits the issuance of PPP loans to debtors, PPP loans for each individual corporate debtor will only be issued upon the approval of the bankruptcy court. The period to apply for PPP funding under the CAA expires on March 31, 2021.
No Discrimination Against Individual Debtors for CARES Act Funding
Section 525 of the Bankruptcy Code has been amended to prohibit discriminatory treatment against individual debtors seeking CARES Act funding. This amendment provides that no individual debtor shall be denied relief under any CARES Act program based on past or present bankruptcy filings. The relevant CARES Act programs available to individual debtors are: (a) the foreclosure moratorium and right to request forbearance (15 U.S.C. §9056); (b) the forbearance of mortgage payments for multifamily properties (15 U.S.C. §9057); and (c) the temporary moratorium on eviction filings (15 U.S.C. §9058). This amendment is set to expire on December 27, 2021.
Rent Deferrals and Extension of Lease Assumption and Rejection Periods
A small business debtor under the recently enacted subchapter V of Chapter 11 has the opportunity to defer rent due in the first 120 days of the bankruptcy case (for an increase of 60 days). The CAA also amended Section 365(d) to extend the time for debtors to assume or reject nonresidential real property leases from 120 to 210 days. This amendment expires on December 27, 2022.
Preference Protection for Certain Landlords and Suppliers
Section 547(b) has been amended to prohibit debtors from avoiding: (a) payments of rental arrearages; and (b) payments of supplier arrearages made during the preference period. These provisions are designed to encourage landlords and vendors to reach deferred payment arrangements with struggling businesses without fear that the deferred payments would have to be disgorged in a subsequent bankruptcy case. To qualify for the exemption: (a) the debtor and landlord/supplier must have entered into a lease or executory contract before the filing; (b) they must have amended the lease or contract after March 13, 2020; and (c) the amendment must have deferred or postponed payments otherwise due under the lease or contract. This amendment expires on December 27, 2022.
Utility Companies Cannot Terminate Service for Lack of Security Deposit
An amendment to Section 366 prohibits utility companies from terminating service for small business debtors who cannot provide a security deposit or adequate assurance of payment, so long as the debtor comes current on their outstanding debt to the utility company within 20 days of filing for bankruptcy and remains current throughout the case.
If you have questions relating to this or other bankruptcy law matters, please contact a Kerr Russell bankruptcy and restructuring attorney.
Jason W. Bank is the chair of the firm’s Bankruptcy and Restructuring department. He focuses his practice in the areas of commercial bankruptcy, out-of-court workouts, corporate restructuring and creditors’ rights. Jason has successfully guided numerous businesses through out-of-court restructurings and Chapter 11 reorganizations. He has negotiated resolutions of complex financial issues and debtor-creditor disputes and achieved consensual restructurings while avoiding bankruptcy or litigation.
J. Luke Brithinee supports businesses and individuals with a variety of matters related to commercial transactions and works with clients to protect and enforce their intellectual property rights. From entity formation and organization through bankruptcy and restructuring, Luke helps guide businesses and individuals through a wide variety of challenges with a goal-oriented and client-focused approach. He also assists clients with estate planning, real estate transactions, and various intellectual property issues including, patents, trademarks, trade secrets, and licensing.
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