In adding Section 503(b)(9) in the 2005 amendments to the Bankruptcy Code, did Congress intend that the supplier beneficiaries of the new section would wear a sign saying “BANKRUPTCY PREFERENCE TARGET – HIT ME”? This article challenges the growing use of bankruptcy preference actions under Section 547 to defeat and delay the allowance of Section 503(b)(9) administrative expense requests. As discussed below, the ploy subverts Congressional intent in adopting Section 503(b)(9). More fundamentally, the ploy ignores a basic tenet of the Bankruptcy Code that also is embodied in the prima facie requirements for bringing a bankruptcy preference action – “First Determine Priority.”
December 22, 2009 Update: On December 21, 2009, Grede Foundries filed the affidavit of Eric W. Ek in support of the of the Debtor’s motion to authorize the sale of assets. The affidavit provides both additional background and updated information regarding the proposed Section 363 Sale to Wazata Opportunity Fund II, LLC, through its subsidiary, Iron Operating, LLC. The affidavit reveals that there was an alternative bidder at the auction.
Increasing instances of administrative insolvency, especially in the automotive sector, have caused many suppliers to question the value of 503(b)(9) claims. Even when administrative expense claims are impaired, however, 503(b)(9) claims can be worth substantially more than their face amounts in settlements of bankruptcy preference claims. Seldom do you see in one case, much less in one settlement order, the absolute worst and among the best examples of using this strategy. A recent settlement order in the Cadence Innovation bankruptcy provides this rare opportunity.
Feb. 08, 2009 – Through two “First Day Motions”, Fluid Routing Solutions, Inc. and its affiliated filers (“Fluid Routing Solutions”) are taking steps to hold their own supplier base in place and avoid disruption to its manufacturing operations. The two motions are:
- Motion for Order Pursuant to Sections 105(a), 503(b), and 507(a) of the Bankruptcy Code Authorizing Debtors to Pay Certain Prepetition Claims of Suppliers and Vendors of Goods and Services Entitled to Administrative Priority
- Motion for Order Pursuant to Sections 105, 363 and 506(b) of the Bankruptcy Code for an Order Authorizing the Debtors to Elevate Certain Prepetition Claims of Certain Critical Vendors to Administrative Priority
This post addresses the first of these motions.
We have included a simple sample of Motion for Allowance of Administrative Expense Claim Pursuant to 11 U.S.C. Section 503(b)(9). You can access this sample by clicking the preceding link.
We stress that this is a sample and a simple one at that. There are several ancillary provisions that could be included depending upon the circumstances of a particular case.
We provide an extensive discussion Section 503(b)(9) administrative expense request process in the article: Bankruptcy Creditor 503(b)(9) Administrative Expense
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