Nice Discussion of Critical Vendor Motions from Chief Judge Sheri Bluebond

Tentative Ruling today from Chief Judge Sheri Bluebond.  I do not know how she ultimately ruled but you can see the thought process very nicely.

2:15-17527 Redondo Brothers, Inc. Chapter 11

#106.00 Debtors Emergency First Day Motion For An Order Authorizing Debtor To Pay Pre-Petition Claims Of Certain Critical Vendors Necessary For Its Continued Operations

There is no basis upon which the Court can or should authorize the payment of prepetition claims.  The concept of a critical vendor is a very narrow one that should only be applied when there is no permissible theory under which the requested amounts can be paid and it is clear that, by using property of the estate in this manner, the value of the estate is increased by more than the amount of cash that must be spent to make the payment.  The debtor has not made a sufficient record to support such payments here.  The motion reflects a debtor who did not want to bother taking the time or effort to analyze whether there are other bases upon which payments can or should be made.

First, it seems that the debtor has simply listed its current payables.  Many of the creditors listed on Exhibit A are parties to contracts.  It would be a violation of the automatic stay for parties to contracts to unilaterally terminate services to the debtor under the contract based on a prepetition default.  They would need to obtain relief from stay first. Further, if the debtor genuinely believes that it is in the best interest of the debtor to continue to do business with these vendors on the terms set forth in the contract, the debtor could file a motion to assume these contracts, and all arrearages under these contracts must be cured as a condition to these assumptions.

Some of the vendors are parties who have delivered goods to the debtor within the 20 days before the bankruptcy.  These parties may well be entitled to assert administrative claims for these unpaid amounts under section 503(b) (9).  This is another basis on which the court may authorize the payment of these claims.  However, neither debtors nor creditors should simply get into the habit of assuming that the debtor will be authorized to pay any vendor who threatens to cut off service if it doesn’t receive payment of its prepetition bill.

Deny motion.

Leave a Reply


nine − = 4