Is Your Case Right for a §503(B)(9) Program? - Using §503(B)(9) to Improve Liquidity and Normalize Vendor Relations
by Bradley Boggess
AlixPartners LLP; New York
Dudley Jordan
AlixPartners LLP; Farmers Branch, Texas
Michael Feder
AlixPartners LLP; Chicago
Much has been written about what §503(b)(9) is not: It does not do enough to protect creditors; it gives too much leverage to vendors and not enough to the debtor; it is not clear enough to provide various constituencies with definite implementation guidelines; or it just adds another layer of complexity that has to be dealt with. While all these—and other—criticisms may be true, in the right circumstances, with a little creativity, a lot of cooperation between the debtor and the unsecured creditors, and a proactive approach, §5093(b)(9) can present a rare “win-win” opportunity in chapter 11.
Section 503(b)(9) came about as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). In short, §503(b)(9) gives vendors an administrative priority claim for "the value of any goods received by the debtor within 20 days before" the date the bankruptcy petition was filed, as long as "the goods have been sold to the debtor in the ordinary course of such debtor's business." In contrast to reclamation claims, there are very limited defenses to §503(b)(9) claims.