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CARES Act: Stock Buyback/Distribution Restriction

03.27.2020

1 minute read

CARES Act: Stock Buyback/Distribution Restriction

President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020 in response to the economic impact of the COVID-19 pandemic. This analysis is part of a series of articles on the stimulus package.

It is expected that the administrative agency responsible for implementing each section of the CARES Act will adopt administrative rules providing clarity on the various provisions. We will continue to provide updates as details become available.

The CARES Act places certain restriction on borrowers with respect to stock buybacks and capital distributions.  

Q: What is restricted?

A: Businesses that borrow money under the CARES Act cannot buy back company stock (unless required pursuant to a pre-existing contract), pay dividends, or make other capital distributions. Additionally, until September 30, 2020, borrowers must maintain their employment level as of March 24, 2020, to the extent practicable, and may not reduce their workforce by more than 10 percent from the March 24 level.

Q: To whom does this restriction apply?

A: Businesses receiving loans and loan guarantees pursuant to the CARES Act.

Q: How long does the restriction apply?

A: For 12 months after the date the loan or guarantee is no longer outstanding.