Critical Vendor Motion in Arclin Bankruptcy Raises Questions for 503(b)(9) Claimants

The first day motion of Arclin US Holdings Inc. and its 6 co-debtor affiliates (“Arclin”) to pay “critical vendors” illustrates how dramatically the “critical vendor” concept can vary from industry to industry. The motion also illustrates how a “critical vendor” motion can be used by a debtor to extract post petition concessions from suppliers holding administrative expense claims under Section 503(b)(9). Finally, the case presents an interesting situation where a debtor argues in favor of inclusion of freight costs in 503(b)(9) claims.

Arclin – Largest Unsecured Bankruptcy Creditors

Arclin US Holdings Inc., (“Arclin Holdings”) has requested authority to file a consolidated list of the 30 largest unsecured creditors of the Arclin and its affiliated Debtors (the “Top Unsecured Creditor List”) in lieu of a separate list for each of the Debtors. All of the claims were listed as trade debt and none of the claims were identified as disputed.

Arclin Group Bankruptcy – Debtors and Petitions

Arclin US Holdings Inc. and 6 affiliated entities (”Debtors”) filed a petitions in Bankruptcy Court for the District of Delaware for relief under chapter 11 of title 11 of the United States Code.  Certain of the Debtors’ non-debtor Canadian affiliates (the “CCAA Debtors” and, collectively with the Debtors, the “Arclin Group”) contemporaneously filed for court protection in Canada from their creditors under Canada’s Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA”), in the Ontario (Commercial List) Superior Court of Justice (the “Canadian Court” and the filing, the “Canadian Proceeding”).

The Arclin Group develops, produces, and markets bonding and surfacing products and technology for the engineered materials markets. The resin bonding products are used predominantly in the manufacture of residential and industrial construction materials such as particleboard, medium density fiberboard, plywood and oriented strandboard. According to the affidavit filed in support of its first day motions, the Arclin Group has approximately 25% of the resins market in the United States and Canada.