Kabbage Inc files for Chapter 11 bankruptcy

December 2022 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

December 2022 Issue

As a result of alleged mishandling of thousands of Paycheck Protection Program (PPP) loans, small-business loan service company Kabbage, Inc. has voluntarily filed for relief and protections under Chapter 11 of the US Bankruptcy Code.

The Chapter 11 filing follows the launch of an investigation by the US Department of Justice (DOJ) under the False Claims Act into PPP loan approval practices.

During a time of unprecedented health and economic uncertainty brought about by the coronavirus (COVID-19) pandemic, the origination and servicing of PPP loans and small business loans to eligible borrowers was critical, with Kabbage processing more than $7bn worth of such loans.

Founded in 2010 and headquartered in Atlanta, Georgia, Legacy Kabbage, a predecessor of Kabbage, was one of the leading FinTech providers of working capital to small businesses for over a decade. Legacy Kabbage began as a proprietary online lending platform for small businesses, providing loan services to over 250,000 American small businesses, many of which had struggled to receive adequate funding through traditional banking institutions.

However, on 16 August 2020, much of the company’s business was sold to American Express Travel Related Services Company, Inc. pursuant to an executed agreement and plan of merger. As a result of the merger, Kabbage operated in a limited capacity as a servicer and subservicer of PPP loans, a software services provider for lenders of PPP loans and a servicer of a minor portfolio of non-PPP small business loans.

To consummate the winding down of its operations in an efficient and effective manner, the Atlanta-based Kabbage has determined that a Chapter 11 restructuring proceeding provides it with beneficial flexibility and protection.

The company also intends for the process to provide a framework for resolution with key stakeholders and a possible global settlement of outstanding disputes. As the Chapter 11 filing progresses, Kabbage is focused on minimising any disruption to its loan servicing obligations to ensure a seamless experience for all borrowers.

“The actions we take today are in line with our mission to support PPP borrowers through their loan forgiveness process, provide loan processing services to partner banks and wind down the company’s existing loan portfolio,” said Laquisha Milner, chief executive of Kabbage. “During the pandemic, the company was instrumental in originating and servicing PPP loans in partnership with the federal government and bringing the benefits of the PPP to small businesses in underserved communities.”

Kabbage has filed a number of customary first day motions with the bankruptcy court that, among other things, seek authorisation to continue the operations of the company. Furthermore, Kabbage has sought relief in the Chapter 11 cases to continue paying all active employees in the ordinary course. This relief includes all wages, compensation and other benefits, including healthcare.

Acting as Kabbage’s restructuring counsel is Weil, Gotshal & Manges LLP, with Richards Layton & Finger P.A. acting as co-counsel and AlixPartners LLP acting as financial adviser.

Ms Milner concluded: “We remain committed to providing high-quality service to borrowers and continuing to service PPP loans without interruption to the best of our abilities during the Chapter 11 process.”

Fraser Tennant