Small Business Administration wants to quash bankrupt radiology practice’s $527K PPP loan

The U.S. Small Business Administration this week is attempting to overturn a judge’s recent ruling that would allow a bankrupt Florida radiology practice to keep its $527,000 Paycheck Protection Program loan.

SBA and the USF Federal Credit Union believe Judge Michael Williamson overstepped his authority back in June, when he ruled that yanking away funds from Gateway Radiology Consultants was discriminatory. The two creditors are now asking a three-judge federal appeals panel to reverse the decision, Law360 reported Tuesday.

Williamson had ordered the Florida-bank to release funds from escrow, and the SBA to back the loan, believing that disqualifying any Chapter 11 debtors goes against Congress’ original intent. According to the report, the three judges questioned whether they could even hear the appeal while also troubled that the practice failed to disclose its financial status in loan applications.

“[Gateway's] position is, 'Lie first, explain later if you have to,’” Eleventh Circuit Judge Ed Carnes said.

On the flipside, attorneys for the radiology provider believed different rules applies with respect to Coronavirus Aid Relief and Economic Security Act funding than the traditional bankruptcy norms.

“It's really a grant, it's not a loan in the ordinary term," Maury Udell, of Beighley Myrick Udell & Lynne, said according to Law360. “A Chapter 11 debtor is under scrutiny from courts and creditors ...The [CARES Act] specifically did not exclude Chapter 11 debtors ... And repayment is not a factor in any PPP loan."

Gateway first filed for bankruptcy back in May 2019, with some $22 million in assets and nearly $15 million in debts. Around since 1975, the Florida provider’s 50 employees had been working for half their regular pay during the pandemic. Read more from Law360 below.