The Ninth Circuit Bankruptcy Appellate Panel recently handed down a ruling important to any seller that markets goods to potentially insolvent companies. In In re Brown & Cole Stores, LLC, one of the issues the Court faced was whether a secured claim is entitled to administrative priority under 11 U.S.C. § 503(b)(9).
Section 503(b)(9) gives administrative priority to a claim for the sale of goods to a debtor that occurred within twenty-days before the filing of the bankruptcy petition. Associated Grocers, Inc. ("AGI"), the creditor in this case, had sold goods to the debtor grocery strore chain that fell within the twenty-day window of section 503(b)(9). AGI, however, also claimed a security interest in the 25% of its stock owned by the debtor--worth approximately $6.3 million.
Debtor argued that the fact that AGI was fully secured meant that AGI was not entitled to administrative priority and to find otherwise would be inequitable to other creditors. The Court affirmed the Bankruptcy Court's ruling that AGI was entitled to a 503(b)(9) claim. The Court held that the plain language of 503(b)(9) did not provide a distinction between secured and unsecured claimants. As for the inequity of allowing such a claim, the Court ruled that if AGI was fully secured, then allowing the administrative claim would free the value of the security for the benefit of other creditors. Conversely, if creditor was undersecured or unsecured, it would be inequiable to AGI to disallow the administrative claim.
Section 503(b)(9) applies to any goods provided by a seller to a debtor within twenty-days before the filing of the bankruptcy petition. As a result, any vendor of goods can assert a priority claim for such goods ahead of the other secured claimants and whether or not the vendor is also secured.
