Bankrupt San Antonio-area educational software developer drops battle with SBA over coronavirus relief loan

Despite an unsuccessful attempt in April to challenge the Small Business Administration policy prohibiting bankrupt businesses from obtaining a loan from the Paycheck Protection Program, Bulverde-based Asteria Education Inc. has not abandoned its offer. get a loan.

The educational software developer received $ 457,433 loan approval from New York-based MBE Capital Partners in July. The lender partnered in May with an insurance company majority-owned by basketball legend Earvin “Magic” Johnson to provide $ 100 million in loans to minority-owned businesses and women under of the Paycheque Protection Program.

Asteria asked the court for permission to borrow the money to pay her September rent and meet her salary obligations. The SBA, once again, opposed, arguing that Asteria “sought funding from a program for which she knew she was not eligible.”

But at the start of a hearing on Wednesday on the demand, Asteria’s attorney, Paul Keiffer, told U.S. bankruptcy judge Craig Gargotta that the company “has made a decision to drop the fight over the product issue. SBA loan “.

Asteria planned to transfer the funds to MBE Capital Partners and then drop its petition for court approval, Keiffer said.

One of Asteria’s creditors, meanwhile, is set to acquire the company’s assets after no third-party offer was accepted before Friday’s deadline. Aavin Mezzanine Fund LP, a private equity fund based in Cedar Rapids, Iowa, has submitted an asset purchase agreement for $ 4.5 million. Asteria owes the fund nearly $ 6 million.

A court hearing to approve the sale is scheduled for next week.

“The case will continue,” Keiffer said in an interview after the hearing, which was held remotely. “It’s not going to go away.”

Asteria dropped out of the loan fight for several reasons, he added. First, it could have exposed Asteria’s executives to claims from the SBA. Plus, while Aavin reportedly loved the money, Keiffer said he didn’t want it enough to fight the SBA.

Asteria, which develops software and other hardware for teachers to prepare students for placement exams, filed a Chapter 11 reorganization application in January with the U.S. bankruptcy court in San Antonio. He listed $ 1.1 million in assets and nearly $ 9.2 million in liabilities.

The case was precipitated by a sharp drop in sales and cash flow problems. Asteria had approximately 25 to 30 employees at the time of filing.

COVID-19 has exacerbated Asteria’s woes. The pandemic has resulted in the closure of schools in Texas, which has reduced the company’s operating profit.

Asteria has filed two PPP loan applications with two lenders. Both requests were rejected due to the Asteria Chapter 11 affair. The company originally requested a loan of approximately $ 700,000.

PPP loans can be canceled entirely if the money is used for payroll and expenses, such as rent and utilities.

Asteria sued the SBA in April in bankruptcy court, alleging the agency overstepped its authority by banning Chapter 11 companies from participating in the loan program. Similar lawsuits had been filed against the SBA elsewhere.

The SBA told the Wall Street Journal in April that SBA chief Jovita Carranza, in consultation with Treasury Secretary Steven Mnuchin, determined that granting PPP loans to failed companies “would present an unacceptably high risk. unauthorized use of funds or non-repayment of unpardoned funds. ready. “

Nothing in the Coronavirus Aid, Relief, and Economic Security Act (CARES), which authorized the small business loan program, prevented a bankrupt business from receiving a loan, Asteria said in its lawsuit. Congress funded the program with $ 659 billion.

Gargotta, in an April court hearing on Asteria’s request for a temporary restraining order against the SBA, sided with the government.

“Sometimes I make decisions that I’m not particularly happy about. He’s clearly one of them, ”Gargotta said, denying Asteria’s request.

Asteria will likely drop her lawsuit against the SBA, Keiffer said. Yet that may not mark the end of the issue of loans for the SBA.

“We’re still trying to figure out how this loan was even approved,” Dominique Sinesi, a Justice Department attorney for the SBA, told the judge at an Aug. 31 hearing. “I think once we understand what happened, we will have a clearer position on what we intend to do.”

Patrick Danner Patrick Danner covers banking, insurance, business litigation and bankruptcy. To learn more about Patrick, become a subscriber. [email protected] | Twitter: @AlamoPD

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