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As bankruptcies become more prevalent, it is important that creditors maximize their ability to recoup what is owed them. A recent court decision helps in that regard.
In 2005, the Bankruptcy Code was amended to create a new class of administrative claims. What previously was considered an unsecured claim (which typically received pennies on the dollar) became an administrative expense claim (commonly paid in full) for “goods” delivered to the debtor within the 20 days prior to the debtor filing for bankruptcy. As of 2005, creditors could assert what is referred to as a 20-day claim with administrative expense status – a greater possibility of recovery. However, there was little guidance on what “goods” qualified for such treatment and whether a creditor that provides both goods and services could still assert a 20-day claim.
On Dec. 10, 2008, the bankruptcy court for the Eastern District of Michigan (in the Chapter 11 case of Plastech Engineered Products, Inc., Case No. 08-42417) issued a groundbreaking decision regarding how to determine whether a claim is for the delivery of “goods” and whether a creditor who provides a mixture of goods and services can still assert a 20-day claim. To the benefit of creditors, the court broadly interpreted the scope of 20-day claims. First, the court said that a creditor can assert a 20-day claim for any goods provided to and received by the debtor within 20 days before the bankruptcy is filed. Second, the court stated the 20-day claim can be asserted regardless of whether the creditor provided only goods to the debtor, or provided goods in conjunction with services rendered to the debtor. So long as the goods can be separately valued, the creditor can assert the claim. Thus, a creditor can now assert an administrative expense claim (commonly paid in full) for any goods provided to the debtor within the 20 days prior to the debtor filing for bankruptcy and a general unsecured claim for the services the creditor provided, presuming that values can be separately assigned to the goods and services.
Although this decision may be appealed, the Plastech bankruptcy court’s groundbreaking interpretations and application of the Bankruptcy Code demand attention because of the impact they will have on other bankruptcy proceedings. Stay tuned for further news from that court.
For more information about this court’s decision, its impact on you or other bankruptcy questions, please contact Alan Rothenbuecher, member of SZD’s Business Restructuring and Creditors’ Rights Practice Group, at arothenbuecher@szd.com or 216.394.5075.
Schottenstein Zox & Dunn Co., LPA
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