Paying-To-Play In Chapter 11

Date

2017

Journal Title

Journal ISSN

Volume Title

Publisher

Journal of Business & Securities Law

Abstract

Secured creditors should pay-to-play in Chapter 11. In short, if secured creditors choose to liquidate their collateral in Chapter 11, they must pay all administrative expenses unless the estate has other available assets to meet those expenses. The author suggests that the most appropriate way to discourage Chapter 11 distributions that violate the Chapter 11 distribution schemes is to forbid the entry of orders at the outset of a case that absolve secured creditors of their obligations under sections 506(c) and 552(a) of Chapter 11. These orders oftentimes have the practical effect, of allowing secured creditors to dictate who gets paid and in what amount in the Chapter 11 case. The Bankruptcy Code does not have to be amended to provide this result. The Code already has two provisions that, properly interpreted, require the secured creditor pay-to-play. Those sections are Code sections 506 (c) and 552. The article concludes that courts should take a closer look at this debtor-in-possession (DIP) financing/cash collateral “boilerplate,” push back on these overreaching demands, and require secured creditors to pay-to-play if they want the benefits of Chapter 11.

Description

Keywords

Bankruptcy, Chapter 11, Chapter 7, Debtor-in-possession financing, DIP financing, Bankruptcy code § 506 (c), Bankruptcy code § 552, Secured creditors, Debtors

Citation

17 J. Bus. & Sec. L. 113