Bankrupt companies sue to get coronavirus aid for small businesses

Bankrupt companies are reportedly suing the feds for cutting them off from loans that could keep them afloat during the coronavirus crisis.

Troubled firms have filed at least a dozen lawsuits against the Small Business Administration to get access to the $659 billion Paycheck Protection Program offering forgivable loans to help small businesses keep their workers employed, according to the Wall Street Journal.

Some of the bankrupt companies seeking help are on the front lines of the pandemic, such as three New England hospitals and Hidalgo County EMS, South Texas’ biggest ambulance service, the paper reported Wednesday. Others reportedly suing the SBA include the fast-casual restaurant chain Così and trucking company Dancor Transit.

The SBA and Treasury Secretary Steven Mnuchin decided that granting so-called PPP loans to bankrupt companies “would present an unacceptably high risk of an unauthorized use of funds or non-repayment of unforgiven loans,” according to the Journal.

But the companies reportedly argue the $2.2 trillion stimulus bill that created the program doesn’t bar money from flowing to firms in bankruptcy. Creditors and federal judges would also be able to oversee how the money is spent by companies going through Chapter 11 restructuring, the WSJ’s story says.

The firms have support from some federal lawmakers who say the loans could help companies that provide vital services pay their workers and stave off closure.

The SBA’s decision “denies the potential for critical funding to hospitals, health centers, and other essential services that are reorganizing their debt in a responsible way,” Sen. Bernie Sanders, Sen. Patrick Leahy and Rep. Peter Welch of Vermont wrote in a letter to SBA administrator Jovita Carranza.