Bankrupt Anesthesia Practice Can Be Blocked From Virus Aid

A bankrupt Atlanta-area anesthesiology services practice has lost its initial bid to require the Small Business Administration to consider its Paycheck Protection Program loan application.

Judge Lisa Ritchey Craig of the U.S. Bankruptcy Court for the Northern District of Georgia said Thursday she couldn’t substitute her own judgment for that of the federal agency, even though she said she “disagrees with the SBA in excluding debtors from the PPP—particularly one such as Plaintiff who is providing vital health care services during the current public health crisis.”

Craig’s decision came a day after a Maine bankruptcy judge also declined to compel the SBA to accept applications from debtors trying to reorganize in Chapter 11.

Craig’s ruling contributes to a split among bankruptcy courts as to whether they can order the SBA to consider bankrupt applicants for PPP loans, which were created by the CARES Act to aid small businesses reeling from the pandemic’s economic effects.

The U.S. Court of Appeals for the Fifth Circuit also has agreed to consider the question in a Texas bankruptcy case.

Henry Anesthesia Associates LLC, which provides anesthesiology services to at least four Atlanta-area hospitals and surgical centers, filed Chapter 11 in September but continues to do business as a debtor-in-possession, Craig said.

Henry’s clients ceased performing elective procedures March 19 because of the Covid-19 pandemic, drastically reducing the firm’s income, the court said.

Like many bankrupt small businesses across the country, the company’s PPP loan application wasn’t accepted solely because it’s in bankruptcy, and it sued the SBA.

Craig found that Henry wasn’t likely to succeed on the merits, denying its request for a preliminary injunction requiring the SBA to consider the application.

The SBA was within its authority to exclude bankrupt companies from the PPP, and the decision wasn’t arbitrary or capricious, Craig said.

The court also “reluctantly concluded” that section 525(a) of the bankruptcy code doesn’t apply.

The provision says a government unit can’t discriminate against a bankrupt debtor seeking a “license, permit, charter, franchise, or other similar grant.” Some courts have ruled that PPP loans are more akin to grants because of their highly favorable terms and likely forgiveness.

Craig’s denial of a preliminary injunction doesn’t prevent Henry from seeking a permanent injunction in the lawsuit.

The case is Henry Anesthesia Assocs. v. Carranza, 2020 BL 207984, Bankr. N.D. Ga., Adv. Proceeding No. 20-06084, 6/4/20.