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Showing 8 posts in Administrative Expense Claims.

Decisions by Third Circuit and Delaware Bankruptcy Court Clarify that “Receipt” under Section 503(b)(9) Requires Physical Possession

Haining Wansheng Sofa Co., Ltd. v. World Imports Ltd. (In re World Imports, Ltd. et al.), No. 16-1357, 2017 WL 2925429 (3d Cir. Mar. 8, 2017) and In re SRC Liquidation, LLC, No. 15-10541 (BLS), 2017 WL 2992718 (Bankr. D. Del. July 13, 2017)

In two recent Opinions, the Third Circuit Court of Appeals and the Delaware Bankruptcy Court clarified that the word “received” in section 503(b)(9) of the Bankruptcy Code requires a showing that goods were delivered into the physical possession of a debtor or its agent within the 20 days before a debtor’s petition date (the “20-Day Period”).  Under the Third Circuit’s holding in Haining Wansheng Sofa Co., Ltd. v. World Imports Ltd. (In re World Imports, Ltd. et al.) and the Bankruptcy Court’s holding in In re SRC Liquidation, LLC, neither receipt of goods by a common carrier nor receipt by a debtor’s customer as the result of a drop shipment within the 20-Day Period satisfy the standard required to render a claim eligible for administrative priority.   The decisions reinforce courts’ strict construction of section 503(b)(9). Read More ›

Bankruptcy Court Fails to Find Wholesaler-Debtor Constructively Received Goods Delivered to Third Parties Twenty Days Before Bankruptcy; 503(b)(9) Claim Reclassified

In re ADI Liquidation, Inc., No. 14-12092 (KJC), 2017 WL 2712287 (Bankr. D. Del. June 22, 2017)

In this Opinion, the Delaware Bankruptcy Court examined whether a debtor, formerly known as Associated Wholesalers, Inc. (“AWI”), constructively received goods that were ordered by and delivered to its customers from claimant, Bimbo Bakeries USA, Inc. (“BBU”) during the twenty day period prior to AWI’s petition date (the “Twenty Day Goods”).  While the goods were never in AWI’s physical possession, AWI’s customers remitted payment for the goods to AWI, which then remitted payment to BBU after retaining a percentage.  BBU filed a large section 503(b)(9) claim on account of the Twenty Day Goods, to which AWI objected.  The question for Judge Carey was whether AWI constructively received the Twenty-Day Goods given its substantial involvement in facilitating the sales transactions between BBU and AWI’s customers.  If the answer was yes, the Court would have expanded the meaning of constructive receipt beyond the customary situation in which a third party recipient is a bailee for the debtor.  The Court, however, answered no and in doing so, drew parallels to “drop-ship transactions.”  A “drop-ship transaction” is a transaction in which a buyer purchases goods from a middleman, who in turn forwards the purchase order to a third party, who then fulfills and ships the order directly to the buyer.  In these situations, courts have found that the middleman does not take constructive possession of the goods.  And while the Delaware Bankruptcy Court found the AWI-BBU transaction similar, it also found the situation a step further removed given that AWI’s customers ordered their goods directly from BBU.  Accordingly, AWI never received the goods nor made the sales.  For those reasons, the Bankruptcy Court sided with AWI and permitted the reclassification of BBU’s section 503(b)(9) claim to a general unsecured claim. Read More ›

Committee Professionals’ Carve-Out in DIP Financing Order Not Per Se Limit on Fees

In re Molycorp, Inc., No. 15-11357(CSS), 2017 WL 56703 (Bankr. D. Del. Jan. 5, 2017)

In this Opinion, Judge Sontchi found, among other things, that an unambiguous carve-out provision of a debtor-in-possession financing order (the “DIP Financing Order”) did not cap the professional fees and expenses of the Official Committee of Unsecured Creditors (the “Committee”) given that a plan of reorganization was confirmed.  Moreover, because the Committee’s professional did not agree to different treatment, its fees and expenses were administrative expenses that must be paid in full. Read More ›

Set Off of Administrative Claim Against Preference Liability is Permissible and Not a “Disguised New Value Defense”

Official Comm. of Unsecured Creditors of Quantum Foods, LLC v. Tyson Foods, Inc. (In re Quantum Foods, LLC), No. 15-50254 (KJC), 2016 WL 4011727 (Bankr. D. Del. July 25, 2016)

In this Opinion, the Delaware Bankruptcy Court addressed a question that remained in the wake of the Third Circuit’s Opinion in Friedman’s: although post-petition goods and services may not be counted as subsequent new value under section 547(c)(4) of the Bankruptcy Code, may they still be used to offset alleged preference liability?  See Friedman’s Liquidating Tr. v. Roth Staffing Co., LP (In re Friedman’s Inc.), 738 F.3d 547 (3d Cir. 2013).  In answering this question of first impression, the Court ruled that they may.  In its holding, the Court also confirmed earlier rulings that section 502(d) may not be used to disallow administrative claims. Read More ›

The Threshold Necessary for a “Substantial Contribution” Finding under Bankruptcy Code Section 503(b)(3)(D) is “Exceedingly Narrow” in Delaware

In re RS Legacy Corp., No. 15-10197, 2016 WL 1084400 (Bankr. D. Del. Mar. 17, 2016) (BLS)

In this Opinion, Judge Shannon denied an individual’s request for allowance and payment of an administrative expense claim for his substantial contribution to the case under Bankruptcy Code section 503(b)(3)(D) in the amount of $203,105.51, which consists of his counsel’s fees and expenses.  In so holding, the Court followed a well-developed body of case law showing that the threshold necessary for a contribution to be “substantial” is exceedingly narrow and such efforts cannot be self-interested. Read More ›

Should Administrative Expense Claims Be Valued by the Contract Rate or the Actual Use of the Service?

In re Highway Techs., Inc., No. 13-11326 (KJC) (Bankr. D. Del. Jan. 30, 2015)

In this Memorandum, the Honorable Kevin Carey determined whether to value an administrative expense claim at the full contract rate or the actual use of the goods and services provided to the debtor.  The Court held that the creditor, Wynne Systems (“Wynne”), is entitled to an administrative claim for only the debtor’s actual use.  In doing so, the Court also denied Wynne’s request for attorney’s fees as an administrative claim, holding that those fees are not an actual and necessary cost of preserving the estate as required by Bankruptcy Code section 503(b). Read More ›

Motion for Reconsideration Denied: Bankruptcy Court Correctly Interpreted Lease

In re Filene's Basement, et al., No. 11-13511 (KJC) (Bankr. D. Del. Jan. 15, 2014)

In this Memorandum Opinion, the Honorable Kevin J. Carey denied the debtor Syms Corp.'s motion for reconsideration of a ruling where he previously held that an amendment to a credit agreement providing for a $10 million working capital loan secured by a leasehold mortgage constituted a "permanent mortgage" under the terms of the lease.  Read More ›

Claimant Not Considered an "Employee" of the Debtor, Denied Administrative Claim for Severance

In re World Health Alternatives, Inc. et al., No. 06-10166 (PJW) (Bankr. D. Del. Jan. 14, 2014)

Despite a claimant's assertion that he was entitled to an administrative expense claim against debtor World Health Alternatives, Inc. ("World Health") for severance, the Court found, in this short letter ruling, that the evidence did not support such a claim. Read More ›