Insights

May 2020 – Covid-19 Legal Update Archive

May 09, 2020

May 05, 2020 – FEAR – What will you do?

As a leader of a business or organization, you have the power to choose which way you want to handle a crisis.  Are you going to put your head in the sand and hope for a recovery or do something about it proactively to improve your chances for survival?

As I have read on the Internet (so, it must be true), FEAR has two meanings:

Forget Everything And Run

or

Face Everything And Rise.

I think these acronyms are important reminders of how you make decisions about the direction of your business or organization.  Are you playing offense, defense or a mix of both?  What are you doing to better position your business or organization for the recovery?  How are you handling your business or organizational FEAR?

If you need some guidance, check out a good article that I recently read from the Harvard Business Review.  It talks about shifting your organization from panic to purpose.

You don’t have to choose to participate in a downturn.  

Here are some other things that may be important or relevant for you:

  • PPP & Bankruptcy – More Analysis – While I hate to see businesses do this, it is an unfortunate reality.  Check out the latest bankruptcy case law analysis from Rob Bovarnick (rmb@rbovarnick.com) of Bovarnick & Associates LLC.
  • Upcoming Webinars and Helpful Resources
    • Stambaugh Ness Town Hall (Tuesdays 2-4pm)
    • NFIB Webinar – Getting Back to Business (Wednesday, 5/6 @ 12pm)
    • RKL Weekly Webinar Series (Fridays)

May 06, 2020 – MPL General Counsel Corner – Good Old-Fashioned Political Pissing Match

The great debate over the deductibility of the PPP related expenses rages on.  After the IRS issued guidance last week related to this topic, business owners were left further confused about whether PPP funds, if properly used, were fully forgivable or not.

It appears this frustration has bubbled up to Congress as top tax writers from both sides of the aisle in the House and the Senate have expressed their disapproval and intent to fix it.  Never one to back down from a fight, Secretary Mnuchin doubled down in support of the IRS interpretation

Looks like we have a good old-fashioned pissing match between two branches of the Federal Government.  Let’s hope the small business community does not end up being battered and bruised as a result.

Here are some other things that may be important or relevant for you:

  • PPP Fraud Round 1:  The DOJ announced the first PPP related fraud case yesterday.  I can guarantee you this will not be the last such case.    (thanks to Chad Bumbaugh from Stambaugh Ness for sharing)
  • How do I know if my county/region in PA will be moving into the next reopening phase?  Technically, your region must have 50 new cases or less per 100,000 people for 14 days to move into the next reopening phase.  However, after an exhaustive search, it has been tough to find the data on the PA Government websites to show this trend.
  • Updated PPP FAQ (Questions 43 & 44):
    • Question #43 extended the “return the funds” due date to 5/14 for those companies that may be uncertain if they comply with good faith certification.  They are also intending to release additional guidance on how it will look at these good faith certifications prior to the 5/14 date. Lets hope they stick to this commitment.
    • Question #44 clarified the accounting for employees of international companies in relation to the PPP application.
  • New PPP Interim Final Rule on non-discrimination and student employees was also released.  While its nice they are clarifying these issues, the big one we are all waiting for is on forgiveness guidance.
  • NJ Governor says there is no timetable to reopen NJ Coronavirus lockdowns…..whether you like it or not!   As much frustration as I hear about PA’s plans, I am glad this tone is not being used here….yet.
  • Upcoming Webinars and Helpful Resources
    • NewsTalk 93.9 & 910 WSBA Interview:  Thanks to Gary Sutton for having me on his show this morning to talk about small businesses and how they may function in a post-Covid environment.
    • Reopening PA – The PA Chamber recently launched bringingpaback.com to help PA business reopen.   It lists all the reopening initiatives by county as well as policy support statements and resources.
    • NFIB Weekly Webinar:  Here are the links to the presentation and the slides from today’s webinar

May 7, 2020 – MPL General Counsel Corner – Time to shift a bit – Focus more on Reopening & Recovering

Businesses around the country are starting to reopen and some are doing it in defiance of Governor’s mandates.  A salon owner in TX was jailed (and ultimately released) for violating a lock down order, while two PA based businesses (another salon and a gym) are back to serving customers in open defiance of the Governor’s shutdown.  The US Supreme Court also denied an emergency petition to reopen businesses in PA on Wednesday.

The momentum to open versus lock down is certainly accelerating.  As a result, I want to shift a bit to share more updates on topics around reopening and recovering.  Hopefully, these additions to our updates will spur some additional thought for you.

Here are some other things that may be important or relevant for you:

  • Perhaps Business Owners Should Think About Some Estate Planning – Brian Luster from Collective Family Office provides a great overview of some Estate Planning topics to think about in the current low interest rate environment.
  • New Guidance on Worksharing from the Department of Labor – Tedd Kochman from Littler provides a good recap and updated DOL guidance around the Short Time Compensation (i.e., worksharing) provisions of the CARES Act.  It may be a good way to bridge the gap from lay off to full time employment.
  • Updated PPP FAQ (Questions 45):  Essentially, this clarification says that if a business returns the PPP loan in full by 5/14/2020, then they are eligible for the Employer Retention Tax Credit.
  • Economic Indicators and Market Stats:  Larry Moskowitz, Certified Financial Services, shared the weekly economic indicator update from JP Morgan Asset Management.  FYI, the NASDAQ is close to being positive for the year.
  • Upcoming Webinars and Helpful Resources
    • Reopening PA  I sent out a link yesterday which did not work.  It is the PA Chamber’s bringingpaback.com website to help PA business reopen.   It lists all the reopening initiatives by county as well as policy support statements and resources. 

May 8, 2020 – Post-Covid Questions to Ponder

As I move from one zoom call to the next, I am hearing some common questions:

  1. What does a post-Covid world look like and how does my business or organization fit in?
  2. What should I be doing now to get my business or organization ready?
  3. Will things ever get back to normal?

I wish I could answer those questions for you, but I can’t.  Only you can do that.  All I can tell you is that when you think through questions like above and other deeper topics, it is important to know that you can tap into your mentors and other professional advisors for guidance.  I think the quote below is appropriate.

“Our greatest weakness lies in giving up.  The most certain way to succeed is always try just one more time.”   – Thomas Edison

Speaking of post-Covid thinking, check out the latest update from Chad Harvey (What Comes Next?  Covid-19 Facts and Their Implications).  I think it provides a nice framework to help you to work on, and not just in, your business or organization.

Here are some other things that may be important or relevant for you:


May 11, 2020 – MPL General Counsel Corner – PPP Funds Still Available, If You Need Them

The US Department of Treasury only provided two updates related to the PPP over the weekend.  We are still awaiting the Loan Forgiveness guidance.

The first was a procedural update related to the extension of the deadline to give back the PPP funds to May 14th.  More interesting was the latest loan numbers as of 5/8.

The total amount of funds approved is now ~$189B, which is 61% of the total amount approved  ($310B) and only a slight uptick from the prior week’s reported level of ~$176B.  On top of that, the average loan per borrower has dropped further to ~$73k from ~$80k in the prior week’s report, while the approved loans are up 55% from all of round 1 levels, versus up 33% as of the first round 2 PPP update.  (see my PPP_Round_2.02t for more data).

While I cannot say for certain, a good theory for the slow loan growth in spite of the accelerated application growth is the return of funds by recipients from round one or early in round two.  Importantly, if you have not applied yet, it looks like there are going to be funds available as long as you need the money.

Here are some other things that may be important or relevant for you:

  • 30% Rule Helped Apple, Maybe It Can Help You.  I thought Steve Jobs did a “pretty good” job turning Apple around.  Perhaps the 30% rule described in the Inc.com article could be a good guide for your business.
  • Mutiny of the Counties – Check out the latest update from Joel Berg at biznewsPA.  He provides a good overview of the various counties and officials in Central PA that are choosing to go against the Governor’s orders.
  • The Great Tug of War – Check out the latest economic and market update from Robert Teeter at Silvercrest Asset Management Group (thanks to Sean O’Dowd for sharing).
  • Upcoming Webinars and Helpful Resources

May 12, 2020 – MPL General Counsel Corner – Who among you will be the next Disney, FedEx or Microsoft?

What do GE, GM, IBM, Disney, HP, Hyatt, Trader Joe’s, FedEx, Microsoft, and Electronic Arts have in common?  Outside of being large (at one point in time) public companies, they were started during a Recession.

There are things that you can be doing right now that could pay dividends for you and your business as we move past the current crisis.  As the leader of your business or organization, you have probably spent a lot of time lately working in your business.

However, the key to long term success is to also be working on your business.
The big question is how do you do shift when everything seems to be collapsing around you? Check out some of the articles below for ways to frame this critical concept:

Working On vs. In Your Business
For Savvy Entrepreneurs, an Economic Downturn Creates Opportunity
You Can Beat the Next Recession:  Here are 5 Companies That Did Just That
The E-Myth Principle is Still Alive and Flourishing

Who among you will be the next Disney, Fedex or Microsoft? 

Here are some other things that may be important or relevant for you:


May 13, 2020 – MPL General Counsel Corner – A Collective Sigh of “PPP Good Faith Certification” Relief

The Treasury Dept. released an updated PPP FAQ with Question #46 added.  Essentially, if you borrowed less than $2M, you are deemed to have met the Good Faith Certification on the need for the loan.  For those who received >$2M, they are still subject to SBA review on a case by case basis.  Importantly, if you are in the >$2M spectrum and there is a determination that you did not meet the good faith standard, then you can pay the funds back without any further enforcement action or referral to other agencies.

This is good news for those that were nervous about receiving the PPP funds.  We can all breath a collective sigh of “PPP Good Faith Certification” relief.

Now, it is on to the PPP Forgiveness clarifications.  Let’s hope that comes out soon.

Here are some other things that may be important or relevant for you:


May 14, 2020 – MPL General Counsel Corner – Stimulus Round 4 – HEROES Act – DOA

The House Democrats released their version of Stimulus Round 4, the Health Economic Recovery Omnibus Emergency Solutions Act (aka, HEROES Act), earlier this week.   It is a $3 Trillion plan that includes funding for state and local governments ($1 Trillion), funds for hazard pay for employees ($200B), funds for mail-in ballots ($3.6B), modifications to the PPP program (extension of the covered period and time to use the funds) and more.  The Act also expands eligibility in the non-profit sector to all 501(c) organizations, not just 501 (c)(3)’s.

The Senate and the President have already expressed the HEROES Act is DOA because it does not include liability protection for companies.  The mail-in ballot funding was also mentioned as a non-starter.

In DC it is business as usual, lets hope the private sector is afforded the same privilege.

Here are some other things that may be important or relevant for you:

  • Interim Final Rule – Loan Increases –  Last night the Treasury Department provided guidance for Partnerships and Seasonal Employers who applied for and received loans under criterion that have since been updated.
    • Partnerships:  If a Partnership received a PPP loan and did not include a Partner’s compensation, the Lender is authorized to increase the loan amount to cover the Partner’s compensation.
    • Seasonal Employers:  If a seasonal employer received a PPP loan under the original criterion and the revised criterion would have resulted in a larger loan, then the Lender is authorized to increase the loan amount.
    • In both cases, the Lender is still subject to the reporting requirements to the SBA and the additional amounts must still conform with current PPP standards.
  • PPP FAQ #47 –  Given the last minute release of the Good Faith clarification, the Treasury Department has extended the time frame to return the funds to 5/18 if you believe you cannot meet the certification.
  • PA Supreme Court Case Ruling Unfriendly to Insurance Carriers:  The Friends of Devito ruling could be used to deny insurance company’s ability to issue blanket coverage denials to businesses who sustained massive losses due to forced closures by executive orders.   (thanks to Scott Rogers from the Southwest Insurance Agents Alliance for sharing).
  • More Pushback on Stay at Home Orders – The Wisconsin Supreme Court struck down the Governor’s shut down order.  This ruling is groundbreaking because for the most part, Courts have sided with Governors on this issue.
  • Upcoming Webinars and Helpful Resources

As we get further into this process, more and more legal battles continue.  We let you know about the Wisconsin Supreme Court case yesterday.  Also, I am hearing more and more about legal challenges to insurance coverage.  In fact, the PA Supreme Court has recently said that they are refusing to fast track any Covid related business insurance challenges.  Check out the latest update from Rob Bovarnick (rmb@rbovarnick.com) of Bovarnick & Associates, LLC.  This will only get more heated as the economy reopens.

Not a lot else on the updates today.  We expect PPP forgiveness clarification from the Department of Treasury any day.

Here are some other things that may be important or relevant for you:


May 16, 2020 – MPL General Counsel Corner – And now for your reading pleasure…PPP Forgiveness Guidance

The SBA & Dept. of Treasury finally released the PPP forgiveness application.  I’d love to take credit for the overview but could not do much better than Chad Bumbaugh and the Stambaugh Ness team.  See below for their overview:

The guidance arrived in the form of the loan forgiveness application announced with this press release late yesterday afternoon.    I’ve provided below an overview of the application contents as well as some commentary from me (in bold) from my early reactions to the application.  We’ll be assessing the guidance and any further information that comes out internally so take the bold comments as my “hot takes” only for now please.  Overall, my opinion is that there are some welcomed simplifications to the requirements, one potential negative around owner’s compensation, and several items still without definitive guidance.

  • Pg. 1 – Forgiveness application requires the PPP Loan Forgiveness Calculation Form (starts on pg. 3) and the PPP Schedule A (for calculating FTE and wage limitations, this starts on pg. 6).
    • Application also includes PPP Schedule A worksheet to help with completing the form and an optional PPP borrower demographic information form (notes that there is no impact from not completing form)
  • Pg. 1 – Alternative payroll covered period detailed on first page should alleviate need for off-cycle payrolls when combined with definition of eligible payroll costs on pg. 3.  Great news!
  • Pg. 2 – interest costs guidance for forgiveness emphasizes “mortgage”.  Other interest costs now not permissible?
  • Pg. 2  – Defines eligible payroll costs – of note payroll costs incurred but not paid during the borrower’s last pay cycle of covered period (or alternative covered period) are eligible for forgiveness if paid on or before the next regular payroll date.
  • Pg. 2 – Eligible nonpayroll costs
    • No guidance on any further utilities being eligible – remains the same list as previously
    • Notes that all eligible nonpayroll costs must be paid during the covered period OR incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.  Big positive – this should largely eliminate need for splitting invoices for things like health insurance since it’s unlikely the monthly invoice aligned perfect to the covered period. 
  • Pg. 3 – Forgiveness ordering of “haircuts” 1) salary/hourly wage reduction, 2) FTE headcount reduction and finally 3) 75%/25% payroll/nonpayroll.  This is different than prior consensus but favorable.
  • Pg. 4 – Notes that payroll for any one individual is capped at $15,385 per individual ($100k / 52 weeks * 8 weeks) – seems to eliminate need to annualize compensation.  Another positive.
  • Pg. 5 – Details line by line items on the forgiveness form – note still not much specific guidance providing on calculating eligible retirement expenses.
  • Pg. 5 & 6 – compensation to owners is listed separately from employee pay.  Instructions to line 9 on pg. 5 note that owners comp capped at $15,385 or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.  I read the intent of this as a limit on bonuses and other compensation to owners if not comparable amounts of bonuses in same time period in prior year.  This could be the biggest negative in the additional guidance.
  • Pg. 7 – FTE defined as 40 hours (not 30 hours as under ACA method previously speculated).   Also provides an optional simplified method to count any employee < 40 hours as 0.5 FTE regardless of hours worked.
    • Other than changing spreadsheets that may have been developed to calculate FTE’s don’t see much impact of move to 40 hour FTE assuming same measurement technique used to measure base FTE’s and covered period FTE’s.
    • The simplified method to calculating part-time employees as 0.5 FTE may become an important planning point for some businesses.
  • Pg. 7 – Details the salary/wage reduction calc and the exception to reduction to complete the PPP schedule A worksheet on pg. 9
  • Pg. 8 – Details the FTE reduction calc and the related safe harbor also to complete the PPP Schedule A worksheet on pg. 9
    • Exceptions expanded to include not just employees who denied attempt to rehire but also those a) fired for cause, b) voluntarily resigned, or c) voluntarily requested and received reduction in hours.     Adjustment made for any of these situations if position was not filled by new employee.
  • Pg. 10 – Provides list of documents that must be submitted with PPP loan forgiveness application and what is required to be maintained, but not submitted.   Based on experiences with the application process it is likely lenders will each have slightly different interpretations on some of these items.   
  • Pg. 11 – optional demographic disclosure form – as mentioned above it is noted that this won’t impact forgiveness if not completed”

Here are some other things that may be important or relevant for you:


May 18, 2020 – MPL General Counsel Corner – Maybe I am forecasting and I don’t know it!

In my weekend reading, I came across the following quote from noted Economist John Kenneth Galbraith that I thought was appropriate given the current situation:

“We have two classes of forecasters:  Those who don’t know – and those who don’t know they don’t know.”

As we progress through the current situation, I am sure you will agree that the forecasters have somewhat missed the mark as it relates to Covid infection rates, deaths, hospital utilization and so on.  I am not making the statement to criticize their efforts, but merely to point out that you can only control what is right in front of you.

If you continue working on your business, talking with your personal Board of Directors and using your professional advisors, I would bet that you will come out the other side of this crisis in a much better position.  Then again maybe I am forecasting and I don’t know it.

Keep moving forward, things will get back to normal.

As a reminder, if you are planning to return the PPP funds without any further obligations (i.e., as if you never received them), today is the last day to do it.

Also, for those that are approaching the end of your PPP initial 8 weeks, here is the loan forgiveness application.  There are several PPP Loan Forgiveness webinars that are coming up.  I have listed them in the bullet points below.

Here are some other things that may be important or relevant for you:


May 19, 2020 – MPL General Counsel Corner – PPP Round 2 Funds Availability Increasing, not Decreasing

The Department of Treasury released stats yesterday for the PPP through 5/16/2020.  Interestingly, they pooled everything together (i.e., round 1 and round 2) for this update.  If my math is right (see attached spreadsheet), total funds allocated for round 2 declined to $171B from $189B as of the last update from 5/8  The average loan size per borrower also continued to drop to ~$64k per recipient from ~$74k as of 5/8 and $206k for Round 1.

Even with the good faith certification uncertainty removed, it looks like more borrowers are opting to return the PPP funds.  Possible reasons for the increasing availability of round 2 PPP funds could be a slower than expected business reopening environment if at all (i.e., no sense in taking the loan if the forgiveness benefit cannot be realized) or no real need for the funds.  The optimist in me hopes it is the latter, but the realist tells me it is likely the former.  If you have returned the PPP funds, please make sure you are fully reviewing the other relief options that are available such as employee retention tax credit.
Also, for those that are approaching the end of your PPP initial 8 weeks, here is the loan forgiveness application.  There are several PPP Loan Forgiveness webinars that are coming up.  I have listed them in the bullet points below.

Here are some other things that may be important or relevant for you:


May 20, 2020 – MPL General Counsel Corner – Happy House Hunting in PA this Weekend

In PA, the real estate market may get moving again.  Governor Wolf issued updated guidelines for realtors beginning this Friday.  Just so everyone knows, PA is the only State, until Friday, to not allow the real estate business to function.  I am sure there are legitimate reasons for this restriction, but it sure seems strange that PA is the only State to impose it.  Outside of that, it looks like the housing market has been surprisingly resilient in other areas of the country, according to a recent article in Money.com Home renovation spending seems to be benefitting as well.

Happy house hunting in PA this weekend if you are in the market.

Here are some other things that may be important or relevant for you:


May 21, 2020 – MPL General Counsel Corner – What does re-opening look like?

What does re-opening look like and how does that impact your business.  I have come across a few helpful resources and articles that may be helpful for you.

Regardless of what you decide, please make sure you understand the local reopening plan for your business.  Also, discuss how your business will fit in this plan with your leadership teams, mentors, board of directors and/or professional advisors.  It could save you a lot of headaches once things get back to normal.

Here are some other things that may be important or relevant for you:


May 22, 2020 – MPL General Counsel Corner – PPP Loan Forgiveness – A Tale of Two Cities

The million-dollar question (bad analogy, but the best I can come up with): What does the loan forgiveness process look like?  I have chatted with several lenders and the most common response has been:  “we are working on it”.

Here is what I know:

  1. The Lenders have 60 days from the submission of the forgiveness application to provide an answer to the borrower.
  2. The Lenders will be making an initial determination, which will then be submitted to the SBA for ultimate approval and funding (also falls in the 60 day timeline).
  3. Paperwork submission and review will not be uniform in terms of the way you send it to the Lender.
    • One lender email that I recently reviewed mentioned a link to a portal will be used for document submission.
    • Another lender is not certain if they will use internal staff or outsource the document review to a third-party consultant.  They have also not decided how the document submission will work.
  4. I have included a few useful links for PPP forgiveness guidance from the US Chamber of Commerce, Trout CPA and RKL.
    1. US Chamber of Commerce:  PPP Guide to Loan Forgiveness
    2. Trout:  Loan Forgiveness Worksheet
    3. RKL:  PPP Forgiveness & Cashflow Link

The long and short is that this process will likely not be uniform at the start, but hopefully will improve over time.  It will also be a “Tale of Two Cities” as the larger (>$2M) PPP loans will be scrutinized and questioned more versus the smaller (<$2M) PPP loans.

I hope you get out and enjoy your Memorial Day this weekend.

Here are some other things that may be important or relevant for you:


May 27, 2020 – MPL General Counsel Corner – Things Must Be Moving To “Normal”

I am noticing that updates and questions about relief programs are slowing down.  It seems that businesses and organizations are getting laser focused on re-opening and what that means.  Moreover, if you look at the most recent PPP lending numbers through 5/23/2020, there is still funding left.  The average loan size in round two declined from to $61k per borrower as of 5/23 from $64k as of 5/16.  Also, the total amount of approved loans continued to shrink from $171B as of 5/16 to $169B on 5/23.  See my attached spreadsheet for the updated loan numbers.

The optimist in me says that things are settling down and must be moving to “Normal”.  Let’s hope the second half of 2020 is better than the first half.  Regardless, you choose whether you want to participate in a recession.

Here are some other things that may be important or relevant for you:


May 28, 2020 – MPL General Counsel Corner – Just the facts, Ma’am

Today’s update is short and sweet, which may be another sign of out move back to normal.

In the immortal words of Sergeant Friday, today’s update is “Just the facts, Ma’am”

Here are some other things that may be important or relevant for you:


May 29, 2020 – MPL General Counsel Corner – PPP Recipients Get A Potential Lifeline

As many of you have heard, the House (not the Senate) passed legislation (H.R, 7010) that relaxed some key restrictions that were in place under the PPP.  Below are the key components:

  • The time to seek full forgiveness would be extended to 24 weeks from 8 weeks.
  • The minimum amount of payroll that must be spent on payroll would be lowered to 60% from 75%.
  • New applications for PPP funds would be extended from June 30, 2020 to December 31, 2020.
  • The loan terms would be extended from two to five years.
  • The deferral period for interest on the PPP loan increases to 10 from 6 months.
  • PPP borrowers would also be eligible to participate in the payroll tax deferral program under the CARES Act (i.e., 50% of 2020 employer payroll taxes would be due in 2021 and the remaining 50% in 2022).
  • The bill also provides more safe harbors for employers that cannot meet the FTE requirements.

The Senate has been working on a similar bill, but the restrictions are a bit narrower.  Senator Rubio also expressed concerns that there are technical errors in the House bill.  Specifically, he highlighted the following:

  • The language around the 60% threshold is more restrictive because a business would have to use at least that amount to be eligible for any forgiveness (the current PPP rules have a sliding scale if you are below 75%).
  • There is also language that changes the requirements for rehiring employees, which Senator Rubio asserts would eliminate the employee retention mandate.

Regardless, it appears that PPP recipients will get a potential lifeline in the coming days.

Here are some other things that may be important or relevant for you:

Share:

Leave a Reply

Your email address will not be published. Required fields are marked *