USA Law and Practice Contributed by: Davis Lee Wright, Natalie D. Ramsey, Katherine M. Fix and Rachel Jaffe Mauceri, Robinson & Cole LLP
2.2 Priority Claims in Restructuring and Insolvency Proceedings See 2.1 Types of Creditors . Holders of administrative expense claims must be paid in full as part of a Chapter 11 plan unless those holders agree to accept a different treatment. The “actual, necessary costs of preserving the estate” (11 USC Section 503 (b)(4)) include: • post-bankruptcy operating expenses; • costs for goods and services; • wages; • taxes; • bankruptcy court-approved professional fees; • certain rent for non-residential real property; and • generally, amounts payable to DIP lenders and trade creditors who provide new borrowing or trade credit during the bankruptcy case. 2.3 Secured Creditors Outside a restructuring or insolvency context, a credi - tor may be entitled to claim a lien or security interest in a debtor’s property (collateral) by virtue of a contrac - tual arrangement, statutory imposition (such as liens for unpaid taxes, unpaid storage fees, or unpaid work or materials), or based on a court-ordered judgment. Applicable state non-bankruptcy laws regarding prior - ity, creditor rights, enforcement procedures and gen - eral remedies vary despite being generally based on the Uniform Commercial Code. Status in state court receiverships or ABCs will also be governed by state law. Intercreditor agreements may alter the status, pri - ority, rights and available remedies, if such modifica - tions are permitted by state law. Broadly generalising, where multiple creditors have a lien on the same col - lateral, the first priority on recovery will turn on wheth - er the applicable statute favours creditors based on timing, notice or a combination thereof. Given that state law may modify this by granting “super-priority” liens (regardless of the order of lien perfection) based on policy considerations, review of applicable govern - ing law is advised. 2.4 Unsecured Creditors An unsecured creditor’s rights outside bankruptcy are generally limited to self-help measures identified
Receiver In a receivership, a state court appoints a receiver to liquidate an insolvent business. A receiver is usually appointed upon the request of a creditor or share - holder. State statutory law or court orders detail the power and authority granted to a receiver. 2. Creditors 2.1 Types of Creditors The Bankruptcy Code recognises and prioritises the following types of creditors: • secured creditors (11 USC Section 506) – provided with first-priority payment rights to the extent of the value of their collateral, with certain procedural variations dependent on the value of the collateral vis-à-vis the value of the claim; • administrative expense creditors (11 USC Section 503) – entities holding claims related to the “actual, necessary costs of preserving the estate”, includ - ing UST fees, professional compensation and the costs of certain goods received pre-petition; • priority unsecured creditors (11 USC Section 507) – creditors holding pre-petition unsecured claims that the Bankruptcy Code grants priority to, such as employee wages, employee benefit plans and taxes; • general unsecured creditors – creditors holding a pre-petition debt or other obligation of the debtor that is not secured by a lien or security interest or entitled to priority; • subordinated creditors – creditors holding pre-peti - tion claims that are subordinated pursuant to 11 USC Section 510 or “equitably subordinated” due to creditor misconduct; and • equity holders – equity holders recover based on their interests in the debtor only after all other creditors have been paid. The Bankruptcy Code subordinates certain claims to general unsecured claims, including those arising con - tractually under a pre-existing subordination agree - ment, as well as certain securities-related claims. A bankruptcy court may also “equitably subordinate” creditors who engage in inequitable conduct.
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