Bankruptcy Law Basics

Very often in the course of a bankruptcy proceeding, a creditor with a pending lawsuit against the debtor will need to obtain relief from the automatic stay in order to continue to prosecute the pre-petition litigation.   For example, personal injury claimants who seek to recover solely against an insurance policy of a debtor may obtain relief from the automatic stay in certain circumstances.  Such claimants will need to file a motion with the Delaware Bankruptcy Court to obtain relief from the stay in order to pursue their claim to a final judgment.

Under Section 503(b)(9) of the Bankruptcy Code, creditors may receive administrative-expense priority for the value of goods “received” by the debtor within 20 days before the debtor’s bankruptcy filing in which the goods have been sold to the debtor in the ordinary course of business. 11 U.S.C. § 503(b)(9).

The question becomes: when are goods considered to be “received” under Section 503(b)(9) of the Code?

When will your company’s Section 503(b)(9) claim be paid?  Under normal circumstances, Section 503(b)(9) claims are paid when the debtor makes a final distribution to creditors.  However, a Section 503(b)(9) creditor can file a motion to demand immediate payment of its claim.  This article will address the standard employed by the Bankruptcy Court in determining whether to grant immediate payment of a Section 503(b)(9) claim.

It is your worst nightmare.  You ship goods to a company, only to find out that shortly after shipment, it files for bankruptcy.  Now, instead of receiving payment for those goods, you are simply one of many creditors of the debtor’s estate.  What remedies do you have under the Bankruptcy Code to recover the amount of the shipped goods?

If the goods were shipped within 20 days of the debtor’s filing, then your claim may qualify for “administrative” status under Section 503(b)(9) of the Bankruptcy Code. The Section provides as follows:

There are generally three types of claims in a bankruptcy proceeding: unsecured claims, secured claims and administrative expense claims. Section 503 of the Bankruptcy Code governs the allowance of administrative expense claims. Section 503 provides that "after notice and a hearing, there shall be allowed administrative expenses…, including the actual and necessary costs and expenses of preserving the estate." 11 U.S.C. §　503(b)(1)(A).