11 USC Section 503(b)(9) provides that a supplier shall be entitled to an “administrative expense claim” for “the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.” 

Clearly motivated by Cadence’s announcement that it is liquidating, suppliers are making sure that they are in line for allowance of administrative expense claims pursuant to 11 U.S.C. Section 503(b)(9). Currently, pending are 503(b)(9) claims for more than $2,880,000. Claim amounts range from $5,209 to $532,835.  Yesterday, January 12, 2009, there was a burst of activity with respect to several of these pending 503(b)(9) motions. Motions were filed by Cadence requesting the bankruptcy court to enter orders granting administrative priority in amounts that Cadence and supplier had agreed to.

Suppliers may have looked at the numbers and realized that the only hope for distributions is through the Section 503(b)(9) administrative expense priority.  This priority is above the unsecured trade creditors.

The Basics of a Section 503(b)(9) Administrative Expense Request

To be entitled to a 503(b)(9) claim, a supplier must show that three things occurred:

(1) that it sold goods to the bankrupt customer;

(2) that these goods were received by debtor within 20 days prior to its bankruptcy filing; and

(3) that goods were sold to debtor in ordinary course of the debtor’s business.

In addition to these events, a supplier must establish the value of the goods sold.

Deadlines for Filing of Section 503(b)(9) Administrative Expense requests

The deadlines for these filing Section 503(b)(9) administrative expense requests are set by court order.  In Cadence (as of the date of this article) the court has not set a deadline for the filing of Section 503(b)(9) requests.  The rush to make the necessary filing has been provoked by the liquidation announcement.

Increasingly, bankruptcy courts are setting these deadlines very early in the bankruptcy proceedings.  If a supplier does not know if the bankruptcy court has set a deadline and what that deadline is, it is at risk of loosing the right to assert the 503(b)(9) claim.  For an example of a deadline being set for a 503(b)(9) claim see our post on the Contech bankruptcy.

A terrible example of a creditor missing a bar date came in the Dana Corp bankruptcy.  In that case, Goodyear lost a 503(b)(9) claim for $1,401,053.85 for goods delivered to the customer within three weeks of the customer’s’ bankruptcy filing.  Goodyear filed their claim after the bar date had past.

For a more detailed, practical  discussion of the need to timely file Section 503(b)(9) claims, go to the article “Debtor Onslaught to Disallow Supplier 503(b)(9) Administrative Expenses.”

Special considerations in determining the amount of a 503(b)(9) claim?

There generally are three aspects of a 503(b)(9) claim that cause suppliers trouble:

(1) determining the date of “receipt”;

(2) identifying the “value” of goods that were delivered; and

(3) determining if goods were sold even though services also were provided as part of the sale.

We have dealt with each of these problem areas in detail  in a separate article:  Bankruptcy Creditor 503(b)(9) Administrative Expense, which can be viewed by clicking this link.