Court Denies Request For Immediate Payment To Creditor Pursuant To 11 U.S.C. § 503(b)(9) Because Of Finding Of Prejudice To Debtor And Absence Of Hardship To Creditor
In re Global Home Prods., LLC, Case No. 06-10340 (KG), 2006 WL 3791955 (Bankr. D. Del. Dec. 21, 2006) (Judge Kevin Gross)
The movant, a creditor of the debtors, with an administrative expense claim for goods delivered to the debtor within the 20 days preceding the date of the debtors’ bankruptcy petitions, moved for allowance and immediate payment of its claim pursuant to11 U.S.C. § 503(b)(9). The court denied the request for immediate payment, finding that the harm to the debtor of being required to make a payment that was not in its budget, and of a type that many other parties had sought, and might in the future seek, outweighed the hardship, if any, to the creditor.
Industria Mexicana del Aluminio, S.A. de C.V. filed a motion for allowance and immediate payment of an administrative expense under 11 U.S.C. § 503(b)(9). Prior to the petition date of Global Home Products, LLC and its co-debtors, IMASA sold aluminum to the debtors. The debtors used that aluminum in the manufacture of their line of cookware products.The debtors received pre-petition and DIP financing from Wachovia Bank. The debtors also had additional pre-petition secured financing. Under these various financing agreements, the debtors granted the lenders liens on substantially all of their assets.
At the time that oral argument was heard with respect to the 503(b)(9) motion, the only issue left for the court to decide was whether payment should be made immediately to IMASA.
IMASA asserted that it was entitled to immediate payment of its 503(b)(9) expense because it would be inequitable to require them to wait, in view of the administrative priority status afforded their claim under the 2005 revisions to the Bankruptcy Code. The debtors argued they were prohibited from immediately paying IMASA because the final DIP financing order prohibited the payment of claims or expenses not authorized in their financing agreement or the DIP budget, absent court approval. Therefore, the debtors argued, making such a payment could constitute a default under the financing agreements. The debtors also argued that if they were required to make immediate payment to section 503(b)(9) claimants, they would potentially be left unable to obtain the financing necessary to continue their operations.
Because section 503(b)(9) is silent as to the timing of a payment under that section, the court analyzed this question by considering(1) the prejudice to the debtors; (2) the hardship to the claimant; and (3) potential detriment to other creditors.
The court found that there would be prejudice to the debtors if they were required to pay IMASA’s administrative expense immediately because (1) making such payments would hurt their ability to borrow; (2) the debtors did not have funds available to pay administrative expenses; (3) the funds available to the debtors were necessary to pay operating expenses; and (4) there had been $2.1 million in such claims already filed, with others likely to follow. Also, the debtors did not know if Wachovia had consented to payment of such expenses, and they were not included in the debtors’ budget.
IMASA claimed they would be prejudiced if they did not receive payment immediately because some section 503(b) claims were being paid, while others were being deferred. The court found this insufficient evidence of prejudice, and noted that the debtors had sought permission to pay the section 503(b)(9) expenses of certain critical vendors from whom the debtors had obtained favorable post-petition trade terms. These decisions were left to the debtors’ business judgment. Also, it appeared that the approximately $200,000 at issue was relatively insignificant to IMASA, which had annual sales in excess of $400 million.
Accordingly, the court found that the prejudice to the debtors of requiring immediate payment to IMASA would far outweigh the prejudice, if any, to IMASA. The court also stated that other creditors would benefit by the ruling to the extent that the court would thereby preserve a later equitable distribution to other administrative expense claimants (presumably, in the event that the estate might become administratively insolvent).
