Debtors are increasingly filing Chapter 11 cases with significant secured debt, limited unencumbered assets, and insufficient cash to fund their bankruptcy process and pay all administrative expense claims in full. They include post-petition fees for the debtor’s and creditors’ committee’s legal, financial and other advisors, rent, wages and—as is most relevant to trade creditors—the amounts owed for goods and services provided to the debtors on credit terms after the bankruptcy filing.
In the bankruptcy claims recovery hierarchy, administrative claims typically rank below secured claims, but are otherwise at the top of the claim’s priority ladder (well above general unsecured claims, including claims for goods and services provided to a debtor before the bankruptcy filing). A debtor is administratively insolvent when it lacks sufficient assets to fully pay administrative claims.
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