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The Bankruptcy StrategistFeaturesBankruptcyLitigationRegulation

The Bankruptcy Code's Anti-Discrimination Section and COVID-19

By Andrew C. Kassner and Joseph N. Argentina Jr.
August 01, 2020

The pandemic has spurred analysis of legal issues as businesses grapple with their respective relationships with both private and public entities. For example, corporate general counsel suddenly were flooded with law firm alerts analyzing the scope of force majeure clauses — a contract term that is rarely the focus of negotiation. In this article, the authors examine Section 525 of the Bankruptcy Code — the anti-discrimination section, and its implications during COVID-19.

A number of bankruptcy courts have been faced with a novel issue on an emergency basis. In response to the pandemic, the federal government enacted the highly published payroll protection loan program to assist devastated small businesses and nonprofit enterprises. However, the Small Business Administration (SBA) issued regulations that disqualified Chapter 11 debtors from participating in the program. Several debtors have sought emergency injunctions to compel the SBA to process their loan applications notwithstanding their ongoing bankruptcy cases. The results have been mixed; some courts have directed the SBA to process the applications, and others uphold the SBA's exclusion of bankrupt debtors from the PPP lifeline.

The Archdiocese of Santa Fe

This issue was recently considered by the U.S. Bankruptcy Court for the District of New Mexico in Roman Catholic Church of the Archdiocese of Santa Fe v. U.S. Small Business Administration (In re Roman Catholic Church of the Archdiocese of Santa Fe), Adv. Case No. 20-01026 (May 1, 2020). According to the opinion, the archdiocese filed for Chapter 11 on Dec. 3, 2018, and has been operating as debtor-in-possession.

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