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Coal company Paringa sues government over access to SBA aid loans in bankruptcy

Subsidiaries of coal producer Paringa Resources Ltd. are suing the U.S. government after being denied $2.3 million from the federal coronavirus relief program due to the company being in the middle of a bankruptcy restructuring.

Hartshorne Mining LLC and Hartshorne Mining Group LLC filed a complaint against the Small Business Administration alleging that its rule barring companies in bankruptcy from accessing the Paycheck Protection Program, or PPP, is contrary to the statute, arbitrary and unlawfully discriminates against businesses that are in bankruptcy. Hartshorne said they meet every one of the statutes eligibility standards but were denied a loan May 6 because of the SBA's rule barring companies currently in bankruptcy from the program.

"Such emergency relief is necessary for the plaintiffs because the PPP funds are in high demand. Available PPP funds are diminishing quickly and will soon be gone," a May 8 filing stated. "If a temporary restraining order is not issued immediately, there will be no remaining funds for the plaintiffs to apply for if and when this court makes a final decision to invalidate the SBA's unlawful and discriminatory anti-debtor rule.

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Hartshorne, which employs 111 people, is the owner of what was once touted as the first thermal coal mine in the U.S. to open under President Donald Trump's pro-coal administration. Since Feb. 20, the company has been working to restructure its business after numerous operational challenges compounded with a persistently weak coal market pushed the company into a Chapter 11 bankruptcy. Multiple coal companies operating in the struggling coal sector have received funds through the program, including Ramaco Resources Inc., American Resources Corp., Hallador Energy Co. and Rhino Resource Partners LP.

Hartshorne wrote that the PPP, a program enacted by the U.S. Congress through the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was designed for businesses like theirs to ensure that workers continue to be paid. The company wrote that nothing in the CARES Act prohibited extending PPP funds to a Chapter 11 debtor even though another loan program that was for midsize businesses that were part of the Act specifically excludes companies in bankruptcy.

"Perhaps most importantly, the stated reason for the exclusion — that debtors in bankruptcy present an unacceptably high risk of an unauthorized use of funds — is 'completely frivolous,'" Hartshorne wrote. "A debtor in bankruptcy is closely watched and supervised by the court, by the U.S. Trustee's office, by creditors, etc., whereas non-debtors can spend their PPP funds without oversight by anyone."

Hartshorne's prospects worsened when on April 13, it received a force majeure notice received from the Ohio Valley Electric Corp., one of just two buyers of the company's coal. Meanwhile, the company said its efforts to sell the company as it restructures have been impeded as the market of potential buyers has come "to a near standstill."

"Plaintiffs are living under a shadow of economic uncertainty that requires them to do what they can to strengthen themselves against a possible wider-spread outbreak of COVID-19, a tightening of social distancing or other economic restrictions, or general economic deterioration that would impair their business," the complaint stated.

Hartshorne pointed to seven cases where bankruptcy courts have signed emergency orders that enjoin the implementation of the rule and forbid discrimination against debtors in bankruptcy. One such order, issued in the case of Americore Holdings LLC and authored by U.S. Bankruptcy Judge Gregory Schaaf, said that an analysis of bankruptcy law "suggests the [SBA Administrator Jovita Carranza] has exceeded her statutory authority by requiring lenders to discriminate against the plaintiff by excluding it from the PPP loan application process."

A spokesperson for the SBA said the agency does not comment on pending litigation.