First-Day Orders Authorizing Full and Immediate Payment of "Critical Vendor" Claims Should Be Prohibited, According to Latest ABI Poll
Alexandria, Va. — First-day orders authorizing full and immediate payment of the claims of “critical vendors” should be prohibited and all pre-petition unsecured creditors should be subject to the same rules, according to a narrow majority of respondents in a recent highly contested ABI Quick Poll. Fifty-one percent (31 percent “strongly” and 20 percent “somewhat”) agreed that all pre-petition unsecured creditors should be subject to the same rules.
When a business files for chapter 11 bankruptcy, the debtor often faces the difficult challenge of inducing its creditors to continue to supply goods and services. Debtors seek the issuance of critical-vendor orders from a bankruptcy court to convince a creditor to continue to do business with the debtor throughout a chapter 11 reorganization.
A critical vendor order grants the debtor the power to settle and pay unsecured creditor claims on the theory that those creditors are necessary to the debtor’s ability to reorganize. By filing a critical-vendor motion on the first day of its bankruptcy proceeding, a debtor asks the bankruptcy court for permission to make immediate and substantially full payments of pre-petition debt to vendors that the debtor deems vital to its continued business operations pursuant to chapter 11 of the Bankruptcy Code.
The poll question was closely divided, with 42 percent of the respondents (23 percent “strongly” and 19 percent “somewhat”) believing that first-day orders authorizing full and immediate payment of the critical-vendor claims should not be prohibited and that pre-petition unsecured creditors do not need to be subject to the same rules. Seven percent did not know or had no opinion on the Quick Poll.
ABI just published the third edition of the First Day Motions guide to the critical first days of a bankruptcy case.
ABI’s Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://www.abiworld.net/quickpoll/ to access the results of previous ABI Quick Polls.
ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes over 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.