Bankrupt Maine businesses sue federal agency for denying them emergency loans

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Three bankrupt Maine businesses are suing the U.S. Small Business Administration for denying them federal Paycheck Protection Program loans, claiming the SBA’s policy against issuing forgivable loans to bankrupt businesses unfairly discriminates against them.

The owner of the Camden Harbor Inn and its upscale restaurant, Natalie’s, is one of three Maine companies suing the Small Business Administration. Photo courtesy of Camden Harbor Inn

The companies include the owner of a hotel and restaurant in Camden and two Cornville-related companies that belong to the state’s forest products industry. All three are in Chapter 11 bankruptcy, in which a company seeks protection from creditors while it restructures its debts.

The three lawsuits were filed on behalf of MG Transport, a trucking company with four employees in Cornville, AS & BC Gould & Sons, a logging company with five employees in Cornville, and Breda LLC, which operates the Camden Harbor Inn, a hotel in Camden which has between 17 and 41 employees depending on the season. The hotel also includes an upscale restaurant called Natalie’s.

The trucking company and the logging company share some administrative and management services, according to court filings.

Plaintiffs say there is nothing in the federal CARES Act, which created the emergency loan program, that prohibits bankrupt businesses from receiving the loans, and that SBA Administrator Jovita Carranza , simply adopted a discriminatory policy on its own. Carranza is named as a defendant in all three lawsuits.

“Based on the plain language of the application form and the (rules developed by the SBA), the administrator intended and is discriminating against debtors in the bankruptcy by refusing to allow debtors to participate in the PPP solely because a company is currently a debtor in a Title 11 matter,” the lawsuit filed by Breda reads.

The lawsuits, filed in federal court in Portland, allege that the SBA, which oversees the loan program, exceeded its authority by making bankruptcy status a determining factor in approving funding. Each plaintiff seeks to enjoin the SBA from barring failed businesses from receiving the emergency loans, as well as damages for the respective loan amount each plaintiff sought.

The Payroll Protection Program was enacted to provide loans to small businesses to help cover payroll and other costs during a shutdown or reduced sales caused by the coronavirus pandemic this spring. If businesses that have received funding use most of the money to cover payroll and other specific expenses, the loans can be converted into grants and do not have to be repaid.

According to the lawsuits, the CARES Act does not specify bankruptcy as a criterion for exclusion from the loan program, and therefore the SBA exceeded its authority by adopting such a policy.

Not only did the law not mention bankruptcy as a consideration for loan approval, according to the lawsuits, but it also clarifies that underwriting considerations such as a company’s creditworthiness and financial condition would not be used to determine which loan applicants have received funding.

MG Transport and AS & BC Gould filed for Chapter 11 bankruptcy on February 25, and Breda filed on March 28.

The suits, all filed by the same group of attorneys at the Bernstein Shur law firm in Portland, seek an injunction ordering the SBA to reconsider the claims with no bankruptcy as a determining factor, and also set aside money for that the three Maine plaintiffs can do funding is still available to them under the program.

MG Transport requested $32,000 from the program, AS & BC Gould requested $55,000 and Breda requested $222,777.

The program was approved by Congress as part of a series of bills aimed at providing relief to businesses affected by the pandemic, leading many states, including Maine, to order the temporary closure of unused businesses. essential. After the initial program quickly ran out of money, Congress passed another measure in April with $320 billion in additional funding for the program.

But critics said the programs tie the hands of many companies with strict rules on how the funds can be used. And some large companies have been able to secure funding under the program because of their business structure, although many returned funding after public criticism.

Adam Prescott, the lead attorney who filed the three lawsuits, declined a request for an interview on Wednesday and said his clients would also not comment. Emails and phone calls to the SBA’s Maine District Director requesting an interview were not returned.


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