Bankruptcy Law, The Law of Debtors and Creditors Problem Set Answers, Warren Westbrook Sixth Edition - Problem Set 21

 Problem Set 21, p.468

21.1 (not discussed)

• §364(a) Borrow money as an administrative expense.
• §364(c) request the court to authorize TIB the obtaining of credit with

• priority over any administrative expense
• lien
• a junior lien.

• §364(d) super priority security interest or equal lien.

• The trustee is unable to obtain such credit otherwise.
• There is adequate protection of the existing secured debts.

21.2

• §726 (b) the administrative expense before the conversion has a priority over the after-conversion administrative expense. According to §503(b)(4) the administrative expense includes the attorney’s fee. Under §507(a)(2) the administrative expense has the priority.
• The debts:

• Pre-petition creditor: FSB $500K secured by inventory worth $250K + §362 account receivable worth $0; $250K remained.
• Post-petition creditor: Hanratty $250K secured by equipment worth $150K; $100K remained.
• Ch. 11 counsel $150K
• Ch. 7 counsel $50K
• Open asset is $350K

• Priority:

• FSB has a super priority under §507(a)(2)(1/2) and get $250K right away, see §507(b)
• Ch. 11 counsel and Hanratty have the same priority under §507(a)(2), so they share pro rata the remaining $100K; Hanratty got the status of administrative expense under §503(b)(3)(D).
• Ch. 7 counsel got nothing.

• Note:

• Here the attorney’s fee got the priority, because it is the administrative fee. §330(a)(1) only means the debtor’s attorney, while here is the trustee/DIP’s attorney.
• §726 distributions: we pay the liquidation expense first.
• §364(c)(1): the judge can give the post-petition creditors the super priority.

21.3 (not discussed)

• Murphy proposed to make a lower interest loan to VEI conditioned that all his loans are secured by all VEI’s assets. It is hard to get the approval of the court for this cross-collateralization.
• §364(c) if the debtor cannot get a loan by granting the administrative expense status, it can set up a new lien on unencumbered property

• the court is likely to approve it
• If the YSB trying to leave, it will enhance the chance for the court’s approval.

21.4

• §503(b)(9) the administrative expenses include 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.
• §546(c)(1) the trustee is subject to the right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller’s business, to reclaim such goods if the debtor has received such goods while insolvent, within 45 days before the date of the commencement of a case but such seller may not reclaim such goods unless such seller demands in writing reclamation of such goods

• not later than 45 days after the date receipt of such goods by the debtor
• no later than 20 days after the date of commencement of the case, if the 45-day period expires after the commencement of the case

• §546(c)(2) if a seller of goods fails to provide notice in the manner prescribed in §546(c)(1), the seller still may assert the rights contained in §503(b)(9).
• When is the commencement of the case? Three weeks ago; here National did not provide the notice under §546(c)(1), so they have to use §503(b)(9); but here it was beyond the 20 days limit, so National cannot reclaim the parts.
• Reclamation is a right between Possession (holds) and Title (owns) defined in the UCC article 2.
• Reclamation is also subject to the automatic stay, right? So the sellers need to ask the court to lift the stay under §362(d)? both yes
• §546(c)(1) requires that the debtor is insolvent when he received the goods; two dates are important:

• 45 days look-back window to receive the goods
• 45 days or 20 days demanding window. It depends on when the bankruptcy is filed. I think if the seller sold the goods to the debtor before 25 days before the filing, he has 20 days to demand reclamation after the filing; if within 25 days, he may have more than 20 days calculating the 45 days.

• If the debtor received the goods after the bankruptcy filing, then the sellers get the administrative expense priority under §503(b)(3)(D); the sellers have no reclamation rights.
• §503(b)(9) also stipulates the reclamation rights, and the sellers don’t have to go through all the requirements.

Problem Sets: Table of Contents

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