Journal of Corporate Renewal

October

2014

Acqua Pura added no benefit to the bankruptcy estate because all the water bottles were gone by the time the petition was filed, but it will have a 503(b)( 9) claim for what it delivered from June 17 to June 24.

The issue of when goods are “received” is not addressed in the Bankruptcy Code, and thus the courts have determined the issue by reference to the Uniform Commercial Code’s Article 2 on the Sale of Goods. Since the right to a 503(b)( 9) claim is viewed as somewhat akin to a replacement for reclamation rights, although not limited to reclamation claimants, the courts focus on a seller’s rights under sections 2-702 and 2-705. See, e.g., In re Circuit City Stores, Inc., 416 B.R. 531, 536 (Bankr. E.D.

Va. 2009). In that context, Article 2 defines “receipt” as “taking physical possession of them,” UCC § 2-705( 2)(b), which has been interpreted to require more than passage of title or risk of loss, and to include a buyer’s agent or bailee having appropriate authority.

E.g., Cargill Inc. v. Trico Steel Co. LLC
(In re Trico Steel Co. LLC), 282 B.R. 318
(Bankr. D. Del. 2002), aff’d sub nom.
JPMorgan Chase Bank v. Cargill Inc. (In
re Trico Steel Co. LLC), 302 B.R. 489,
494 (D. Del. 2003)(right of stoppage of
goods). Delivery to a common carrier
without duties other than carriage,
however, is not delivery to the buyer as
contemplated by section 2-705. Cargill,
282 B.R. at 324, citing In re Marin Motor
Oil, 740 F.2d 220, 225 (3d Cir. 1984).

What does all this mean for Auspicious
Jeans and Sacco? If Kontainer was a
properly authorized agent or bailee—
and the fact that goods destined for
others were in the container clouds
the issue—Auspicious Jeans should
have a 503(b)( 9) claim. Otherwise,
it most likely does not, because the
goods were not delivered to Fashions
within the 20 days before the petition
date. Cf. In re Goody’s Family Clothing,
Inc., 401 B.R. 131 (Bankr. D. Del. 2009)

( “The language of the statute provides for the allowance of an administrative claim provided the claimant establishes: ... ( 2) the goods were received by the debtor within twenty days prior to filing.”). Sacco appears to be out of luck regardless. Although it delivered its bags to the common carrier on time for delivery three days before the petition was filed—and again, through no fault of its own—they were not “received by the debtor” until the date of the commencement of the case, though they clearly benefited the post-petition estate and only the post-petition estate.

The adoption of section 503(b)( 9) also has had an obvious effect on retailers’ ability to reorganize and on post-petition lenders’ appetite to lend, because now there is a new class of claims entitled to payment in full, in cash, on the effective date of any confirmed plan. They must be reserved for and paid out of any of the cash available, so many lenders factor that into their budgets and out of the debtor’s borrowing availability.

Initially, given the nature of the remedy, 503(b)( 9) claimants asserted that, like all other suppliers of goods benefitting the post-petition estate, they were entitled to immediate payment. That caused a panic among practitioners because of its potential effect on liquidity. Section 503(b) is silent as to timing of payment of administrative claims. Under §507(a)( 2), an administrative expense under §503(b) is treated as a first priority expense in a business bankruptcy case. As noted earlier, a plan may only be confirmed if it provides for payment of §507(a)( 2) priority claims no later than the effective date of the plan. Other than this confirmation requirement, however, the timing is left to the discretion of the court.

The first written opinion on the topic was In re Global Home Prods. LLC, Case No. 06-10340 (Bankr. D. Del. Dec. 21, 2006) (Gross, J.). In Global Home Products, a creditor whose goods were delivered to the debtors within the

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