Debtors in large Chapter 11 cases frequently seek bankruptcy court approval of an order that authorizes the debtor to pay the prepetition claims of certain vendors that the debtor deems to be critical to the success of its bankruptcy case. Debtors seek this authority on the premise that the business would be irreparably disrupted and that efforts to maximize value for their estates and creditors would be severely impaired if these “critical vendors” refuse to provide goods and services post-petition. Courts routinely approve these critical vendor orders in the districts in which some of this country’s most prominent Chapter 11 cases are filed, such as the District of Delaware and the Southern District of New York, and more recently in the Southern District of Texas.
The U.S. Court of Appeals for the Second Circuit (Second Circuit) recently had an opportunity to weigh in on a critical vendor order that was approved by the U.S. Bankruptcy Court for the Southern District of New York (Bankruptcy Court) in the Windstream Holdings Inc., et al Chapter 11 cases and affirmed by the U.S. District Court for the Southern District of New York (District Court). In Windstream, the Bankruptcy Court had authorized the debtors’ payment of the prepetition claims of critical vendors over objections raised by one of the debtors’ unsecured creditors, GLM DFW, Inc. (GLM). Following the District Court’s decision affirming the Bankruptcy Court’s order, GLM appealed to the Second Circuit.Click here to view the full article