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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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…