submitted by Bianca Roberto, Esq., Stark-Stark.com
Not all loan money received through the Paycheck Protection Program (PPP) is forgivable.
Companies need to make sure they spent their PPP loan money “correctly” when applying for total loan forgiveness from their lenders.
While payroll is forgivable under the PPP, distributions to company owners are excluded.
Therefore, if a company made distributions to owners rather than payroll payments, the company could remain on the hook for those funds.
PNC Bank recently responded in a lawsuit brought by a Pennsylvania-based company that it was not required to forgive distributions made by a plaintiff-company to its owners.
The bank argued that the Small Business Administration (SBA) bars loan money from being spent on “owner distributions,” and the company would have to pay that money back to PNC.
Further, the Coronavirus Aid, Relief, and Economic Security (CARES) Act limitations on what payments can be forgiven do not constitute a private right of action against the lender.
PNC also argued that it would be subject to claims for violations of federal law if it submitted forgiveness requests that included owner distributions to the SBA.
The United States District Court for the Western District of Pennsylvania has yet to rule on PNC Bank’s motion to dismiss the plaintiff-company’s complaint.
Issues related to PPP loan forgiveness will undoubtedly lead to claims by and between shareholders and members of various entities in Pennsylvania and across the country.
Shareholder disputes have been on the rise during the pandemic.
In Pennsylvania and New Jersey, courts have seen an uptick in filings for injunctive relief and money damages against company shareholders and directors who have allegedly mismanaged a business and its finances.