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Protecting Creditors’ Administrative Claims in Chapter 11 Bankruptcy Cases

In the recent Verity Health System of California, Inc. bankruptcy case in the Central District of California, the debtors were able to secure approval from a judge post-plan confirmation to pay certain administrative claimants between 15% and 23% of their outstanding debt.

In this Reuters article authored by Loeb & Loeb Restructuring & Bankruptcy lawyers Schuyler Carroll, Bethany Simmons and Noah Weingarten, the writers examine several bankruptcy claims where debtors were able to leverage the risk of administrative insolvency to circumvent their obligation to pay trade and ordinary-course administrative claim holders in full, as is required under sections 503(b), 507(a)(2) and 1129(a)(9) of the Bankruptcy Code. The authors also study other debtors who have continued paying certain administrative claim holders (typically, professionals) in full, while trade and ordinary-course administrative claimants receive only a small percentage.

The article outlines steps administrative claimants can take to collect 100% of their administrative claims, including being proactive, working with debtors to obtain immediate payment, and negotiating plan provisions.