Killing Two Birds with One Stone

• Published in: American Bankruptcy Institute journal 2020-11, Vol.39 (11), p.12-52
• Main Authors: Anderson, Eric W, Sullivan, Michael C
• Format: Article
• Language: English
• Subjects: Administrative expenses; Bankruptcy; Bankruptcy laws; Bankruptcy reorganization; Debtors; Federal courts; Liens
• ISSN: 1931-7522

In response, GPIF filed a motion for relief from the automatic stay under the SARE provisions of § 362(d)(3), alleging that the debtors' plan was patently unconfirmable because it was predicated on court approval of a nonconsensual priming lien, which could not be approved by the bankruptcy court or under state law. After holding hearings on the debtors' exit-financing motion and GPIF's stay-relief motion, the bankruptcy court acknowledged that whether the debtors' exit financing could be approved was a threshold issue (because confirmation was impossible without the financing), but ultimately ruled that in the absence of controlling case law, the debtors were not, "as a matter of law, precluded from seeking an exit financing facility on a first-priority priming lien senior to preexisting liens on property of the estate pursuant to 11 U.S.C. § 364(d)(1). [...]the court found that § 364(a) provided for administrative-expense priority as an inducement to be offered by the DIP to attract credit. [...]administrative expense status is granted under § 503(b)(1) of the Bankruptcy Code only for costs of preserving the bankruptcy estate, not for the costs of a reorganized debtor.4 Furthermore, the court noted that § 1129 required all administrative expenses to be paid in full on the plan's effective date; thus, such treatment would clearly conflict with the use of funds for post-confirmation expenses, as it would make the exit financing due in full on the plan's effective