Bankruptcy Law

USA Gymnastics Sues for Access to Small Business Virus Aid

May 19, 2020, 7:20 PM

USA Gymnastics has joined a chorus of companies challenging the Small Business Administration’s policy denying economic stimulus payroll loans to bankrupt companies.

USAG, which has been in Chapter 11 since December 2018 to deal with the fallout of sexual abuse lawsuits, filed a complaint Monday with the U.S. Bankruptcy Court for the Southern District of Indiana, saying cancellation of this year’s Summer Olympics has put the organization in a bind.

The SBA’s policy “impermissibly discriminates against debtors in bankruptcy” and exceeds the agency’s authority, the sport’s governing body said.

A number of bankruptcy judges have ruled that the SBA can’t automatically exclude PPP applicants just because they’re in bankruptcy, noting that the $659 billion small business loan program is more like a grant.

The bankruptcy code bans the government from discriminating against companies that have filed bankruptcy when administering grant programs.

“Because the SBA’s implementation of the PPP contravenes the text of the CARES Act and the Bankruptcy Code, USAG requests that the Court declare that USAG is not ineligible for a PPP loan solely because of its status as a chapter 11 debtor, and enjoin the SBA from enforcing its contrary, unlawful policy,” it said.

In USAG’s case, the aid would help buffer the negative impact caused by the Covid-19 pandemic and the International Olympic Committee’s decision in March to postpone the 2020 Olympic games, the organization said.

The postponement “has materially and negatively diminished USAG’s anticipated cashflow for the foreseeable future,” it said.

The organization remains in bankruptcy while it addresses a flood of claims stemming from former national team doctor Larry Nassar’s sexual abuse of gymnasts.

It proposed a Chapter 11 plan earlier this year that would give gymnasts the choice of collectively voting to settle their suits for about $217 million worth of insurance policy proceeds, or individually pursuing litigation and collection on their own.

The case is In re USA Gymnastics, S.D. Ind., No. 1:18-bk-09108, Complaint filed 5/18/20.

To contact the reporter on this story: Alex Wolf in New York at awolf@bloomberglaw.com

To contact the editors responsible for this story: Laura D. Francis at lfrancis@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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