Section 503(b)(9) of Chapter 11 of the U.S. Bankruptcy Code provides that trade creditors whose goods are received by a debtor within 20 days before a bankruptcy filing are entitled to administrative expense claims for the value of such goods. Notably, §503(b)(9) does not apply to trade creditors that provide services. The main benefit of having an administrative priority claim is that the claim is higher priority than an unsecured claim and is generally required to be paid in full before unsecured claims are entitled to any recovery.
However, when a trade creditor provides both goods and services to a debtor, courts differ on how to treat such a creditor’s claim. Is the entire claim afforded §503(b)(9) treatment? Should courts bifurcate the claim between goods and services, granting a higher priority treatment to the goods portion? If bifurcation is appropriate, how should courts approach this analysis? Not surprisingly, this analysis, for a variety of reasons, is not always straightforward, resulting in courts relying upon different methodologies and tests to analyze the issue.
*This article originally appeared in Commercial Factor.Click here to view the full article