Articles by Our Attorneys

If you have a loan with Complete Business Solutions Group, Inc., d/b/a Par Funding (“Par Funding”), you should hire an attorney ASAP because they have just been placed into a receivership and you should know your rights. In the past, if you default on the loan, Par Funding will often file a confession of judgment against you in Philadelphia County, Pennsylvania, and I have defended many of these. In addition to many of Par Funding’s loans charging exorbitant interest rates, they often confess judgment against not only the entity borrowing the money but the individual guarantor even though we have argued that the loan documents my clients have been given by Par Funding do not authorize a confession against the guarantor. If you are having trouble paying back the high interest rates on the hard money loan, a receiver has just been appointed for Par Funding and it will probably be easier to negotiate a settlement with the receiver than it would have been with Par Funding. An article in the Sunday Philadelphia Inquirer on July 31, 2020 stated some of the loans charged more than 400% interest and a sample of the loans found more than half carried interest rates of more than 95%. Protect your rights and hire an attorney.

It has recently come to light that, in addition to having problems with their borrowers, Par Funding is now being investigated by the Securities and Exchange Commission as an investment scam. The Securities and Exchange Commission (“SEC”) filed a complaint in the Southern District of Florida against Complete Business Solutions Group, d/b/a Par Funding and other entities including Lisa McElhone and Joe Barletta a/k/a Joe Cole a/k/a Joe LaForte, Perry Abbonizio and Dean Vagnozzi, who advertises aggressively as “A Better Financial Plan”.

If you are an investor in Par Funding, you also need to hire an attorney ASAP as the SEC is asking a Federal Judge to freeze the assets of LaForte and McElhone, Vagnozzi and Abbonizio, and a receiver has been appointed for Par Funding to protect any remaining investor assets.

Michael G. Louis, Esquire
MacElree Harvey, Ltd.
17 West Miner Street
P.O. Box 660
West Chester, PA 19381-0660
(610) 840-0228
e-mail: mlouis@macelree.com

In a recent article, we discussed the enactment of The Small Business Reorganization Act (“SBRA”), which went into effect on February 19, 2020. This article will discuss some of its more significant provisions, which give small businesses effective new tools for dealing with debt and creditors, and for successfully reorganizing under the amendments to Subchapter V of the Bankruptcy Code.

There are numerous significant changes under Subchapter V benefitting the debtor. There is no unsecured creditors committee. An individual case trustee is assigned to each case, whose role is supervisory and to facilitate the debtor getting a consensual plan with creditors. These changes, along with others referenced herein, evidence the intent of the amendments to encourage consensual plans and avoid the contentiousness that sometimes arises in regular Chapter 11 cases between the debtor and the creditors committee and/or the US Trustee.

There are also no US Trustee fees and no requirement to file a disclosure statement in Subchapter V cases. Unlike regular Chapter 11 cases, only Subchapter V debtors may file a plan and only Subchapter V debtors may modify that plan. Some deadlines are also accelerated in comparison to a regular Chapter 11 case; for example, the Subchapter V debtor must file its plan within 90 days of commencement of the case.

Also, of great significance is the fact that the Absolute Priority Rule does not apply, which was often a significant impediment to small business debtors confirming and completing a plan of reorganization. The Absolute Priority Rule prevents a debtor from retaining any property if it does not pay all of its creditors in full. Moreover, the debtor is not required to contribute new value in order to get a plan confirmed. The Subchapter V debtor also has the ability to “cramdown” or, in other words, reduce or discharge the debt owed to unsecured creditors. These provisions will not only enhance the odds of putting together a confirmable plan but will facilitate the debtor’s ability to successfully negotiate with creditors.

Because of the tighter deadlines in Subchapter V bankruptcy cases, and the new provisions for dealing with creditors, it is expected that Subchapter V cases can proceed more quickly, can be completed for less cost and will result in consensual plans between a debtor and its creditors.
These attributes are of great value to small businesses seeking to reorganize and will place a premium on pre-bankruptcy planning and negotiations with creditors.

On May 29, 2020, the Pennsylvania Legislature passed the COVID Relief – Mortgage and Rental Assistance Grant Program. A minimum of $150,000,000.00 was allocated for rental assistance grants and the money has been appropriated to the Pennsylvania Housing Finance Agency for COVID Relief. The Agency must establish guidelines that are consistent with the provisions of the Act within thirty (30) days of May 29, 2020. An eligible lessee (tenant), mortgagor (homeowner), landlord or mortgagee (bank) may apply for relief if the tenant or homeowner became unemployed after March 1, 2020 or had their annual household income reduced by 30% or more due to reduced work hours and wages related to COVID-19.

The Agency is to develop an application for eligible tenants, homeowners, landlords or lenders to apply for assistance under the Act within thirty (30) days of May 29, 2020.

The application shall include a statement by the landlord or lender releasing the tenant or homeowner of any remaining obligation for any past due or future rent or mortgage payment for which the Agency pays the landlord or lender.

Only households with an annualized current income of no more than the upper limit of “median income” will qualify.

For rental assistance, an amount equal to 100% of the tenant’s monthly rent, not to exceed $750.00 per month, for each month for which assistance is sought for a maximum of six months is available. For mortgage assistance, an amount equal to 100% of the homeowner’s monthly mortgage, not to exceed $1,000.00 per month for each month for which assistance is sought for a maximum of six months is available. Payment shall be made no later than November 30, 2020.

The Small Business Reorganization Act (“SBRA”) codified amendments to the Bankruptcy Code and went into effect on February 19, 2020.  Prior to these amendments, small businesses attempting to reorganize under Chapter 11 of the Bankruptcy Code regularly faced tremendous hurdles in confirming a plan of reorganization and, if successfully confirming a plan, seeing that plan to completion.  These obstacles included the large expenses associated with Chapter 11 cases, the legal requirements imposed upon the reorganizing debtor under the bankruptcy laws and an often adversarial relationship between the reorganizing debtor and the unsecured creditors committee and/or the United States Trustee.

The amendments governing small business debtors are found in Subchapter V of the Code and serve to reduce the obstacles faced by small businesses attempting to reorganize.  These amendments are designed to reduce the time and cost of reorganization for small businesses, ease the burden of compliance, create a relationship with the case trustee that is more conducive to obtaining a consensual plan of reorganization, and provide the reorganizing debtor with new tools to deal with unsecured creditors. All of these changes should allow small business debtors to confirm more workable plans and successfully complete a reorganization.

Originally, the cap for filing as a small business debtor under Subchapter V was $2,725,625, at least 50% of which must have arisen from commercial or business activity.  Significantly, insider debt (essentially debt owed to the owner) is not counted towards the cap.  Under the recently passed CARES Act, the cap was raised to $7.5 million for cases filed on or before March 27, 2021, which will allow many more debt burdened small businesses to take advantage of the benefits of Subchapter V.

In the next few weeks, we will publish a companion article highlighting some of the more significant changes in Subchapter V.  These changes will illustrate how this new subchapter gives qualifying small businesses new tools for managing debt and creditors, and reorganizing under the bankruptcy laws.

On June 5, 2020, the President signed into law important revisions to the Payroll Protection Program, including significant changes to the requirements for PPP Loan forgiveness.

The changes are consistent with the bill passed by the House on May 28^th which are outlined in the Southern Chester County Chamber of Commerce Webinar. The webinar also includes an overview of the PPP loan forgiveness application process.

The highlights of the recently enacted changes to the PPP program include:

1. Small Businesses now have 24 weeks (instead of 8) to spend their PPP funds;
2. Borrowers have to spend at least 60% of the PPP Funds on payroll costs and can spend up to 40% on other approved expenses. The prior ratio was 75/25. It is important to note that if a business does not spend at least 60%  of their PPP funds on payroll expenses, ALL of the PPP funds become a loan;
3. Employers have until 12/31 (instead of 6/30) to bring employees back to full time status;
4. PPP recipients will also be able to take advantage of payroll tax deferrals; and
5. Any PPP funds that are not eligible for forgiveness will become a loan that can be repaid over 5 years (instead of 2).

 How the PPP program’s requirements apply to your business and its forgiveness application requires a very fact specific analysis. If you have questions about how to best your PPP funds or apply for loan forgiveness, please contact Mary Kay Gaver at mkgaver@macelree.com.

Unlisted Resident Driver Exclusion Can Preclude Car Insurance Coverage

You and your boyfriend live together and one day he asks you to take his car and drive to the supermarket to get some groceries.  You get the distracted while driving, run a red light and cause an accident that injures someone. Are you covered by your boyfriend’s car insurance if the injured person sues you?

Maybe not, if the car insurance policy has an Unlisted Resident Driver Exclusion (“URDE”).

In August 2019, the Supreme Court of Pennsylvania decided the case of Safe Auto Insurance Company v. Oriental-Guillermo, 214 A.3d 1257 (Pa. 2019) which found that a URDE was valid and enforceable and excluded car insurance coverage for a live-in girlfriend driving her boyfriend’s car.

This decision can be applicable to other roommate situations and can result in accident victims being uncompensated or negligent drivers facing personal liability for car accidents that are not covered by insurance.

Facts of the Case

Rachel Dixon was driving a car owned by her boyfriend Renee Oriental-Guillermo when she was involved in an accident with another vehicle in which Priscilla Jimenez was injured.

Dixon lived with her with her boyfriend, Oriental-Guillermo and his car was insured by Safe Auto.  The Safe Auto car insurance policy  contained an Unlisted Resident Driver Exclusion  (“URDE”) which stated that the Policy excluded liability coverage  “that occurs while your covered auto is being operated by a resident of your household or by a regular user of your covered auto, unless that person is listed as an additional driver.”

It was undisputed that Dixon lived with Oriental-Guillermo and was not listed as an additional driver on the car insurance policy.

When Jimenez sued Dixon, she turned the claim into Safe Auto under the insurance policy that covered  her boyfriend’s car. However, Safe Auto denied coverage citing the URDE, arguing that the car insurance policy clearly stated that coverage would not apply to a resident using the vehicle who was not a listed as an additional insured.

The Supreme Court Decision

Since the Safe Auto car insurance policy provision was unambiguous and clearly excluded coverage, Dixon’s lawyer had to argue that the URDE was unfair and unenforceable because it was against Public Policy.  Dixon’s lawyers reasoned that the law seeks to limit the number of uninsured drivers in Pennsylvania and attempts to provide maximum feasible restoration to accident victims and that allowing the URDE to be enforced would deny Jimenez, as well as other accident victims, fair compensation for car accident injuries.

Safe Auto countered by arguing that Pennsylvania law also seeks to contain car insurance costs and providing broader coverage than that which is provided for in a car insurance policy increases, rather than decreases, insurance costs.

Ultimately, the Supreme Court noted that Oriental-Guillermo did not dispute that he was aware of the URDE and yet he allowed his girlfriend to drive his car, when he could have added her as an additional driver to the policy.  Adding her as an additional driver would have resulted in additional premiums, but also would have allowed Safe Auto to understand the full risk that it was insuring.

In the end the Supreme Court said that “insurers are not compelled to underwrite unknown and uncompensated risks” and it held that the URDE was not against Public Policy.  Instead, the URDE was enforceable and Dixon was not covered for the car accident.

Implications of the Decision

The implication for Jimenez was likely that she would be uncompensated for her injuries because Dixon was uninsured.

However, there are much broader implications of the Safe Auto Insurance Company v. Renee Oriental-Guillermo decision.  Not only would the Unlisted Resident Driver Exclusion apply in a relationship situation, but it could also apply in any roommate situation.  So, if you are living with friends at or after college and you borrow and wreck a friend’s car, his/her car insurance policy might not cover you for the damages and injuries.

Nevertheless, be aware that you may be covered by the liability coverage of other car insurance policies, like for your own car or perhaps for a relative you live with or another policy on which you are a named driver.  However, if you are not covered under any car insurance policy and find yourself victim to a URDE ,your personal assets could be at risk.

So, before you drive anyone else’s car, be sure that you have car insurance protecting you!