Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Daniel Gill
Quarterly fees a former Chapter 11 debtor owed to the U.S. government must be paid on par with Chapter 7 administrative expenses, an Ohio federal judge ruled ( U.S. Tr.. v. STE-BRI Enters., Inc. , 2017 BL 337102, N.D. Ohio, No. 5:16-cv-2515, 9/22/17 ).
The opinion by Judge Sara Lioi, of the United States District Court for the Northern District of Ohio, reversed a bankruptcy court, which directed that Chapter 7 administrative expenses be paid in full before the quarterly fees. Those would be paid on par with Chapter 11 administrative expenses after the Chapter 7 expenses, the bankruptcy court had said.
Ste-Bri Enterprises Inc. filed a Chapter 11 case on Aug. 25, 2011. In Chapter 11, a company can keep operating and enjoy certain protections from creditors while trying to reorganize.
Ultimately Ste-Bri failed to come up with a workable plan of reorganization and it converted to Chapter 7 in March 2014. In that chapter, an independent trustee is appointed to liquidate the debtor’s assets for the benefit of its creditors, which are paid according to a strict priority schedule set forth in the bankruptcy code.
At the time it converted, the company owed about $9,700 for Chapter 11 quarterly fees which had come due.
Because there were insufficient funds to pay all administrative expenses and the quarterly fees in full, the Chapter 7 trustee proposed to pay her Chapter 7 administrative expenses on par with the U.S. trustee quarterly fees. No one objected.
Despite no objection, the bankruptcy court raised the question of whether the Chapter 7 expenses should be superior in priority to the quarterly fees. It ruled that they should, following a minority of cases having considered the question.
The district court said the bankruptcy court erred in its decision, agreeing with the majority of courts looking at the issue.
The court relied on Section 507(a)(2) of the Bankruptcy Code. That section says that in a business bankruptcy, first priority for payment of claims goes to allowed administrative expenses, claims of any Federal Reserve bank made under another statute, and “any fees assessed against the estate under chapter 123 of title 28.” That section is the predicate for assessing U.S. Trustee quarterly fees.
The court followed those courts, like the Ninth Circuit, which said that Congress intended the quarterly fees to have a priority equal to that of the Chapter 7 expenses, and superior to Chapter 11 expenses.
Amy Leizman Good, Cleveland, represented the United States Trustee. The Chapter 7 trustee, Dynele Schinker-Kuharich, was represented by Michael A. Steel, Akron, Ohio.
To contact the reporter on this story: Daniel Gill in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)