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Recovering Attorneys' Fees As an Administrative Expense
In counseling clients on whether to structure a transaction as a lease or a loan, there are several financial considerations. The first is the potential that the client's customer could file for bankruptcy, and its impact upon recovering rent payments as a priority administrative expense. In that case, attorneys' fees are a factor as well. The Bankruptcy Code provisions that govern the rights and remedies of an equipment lessor in comparison to the rights and remedies of a secured lender differ significantly ' they may be considered more favorable to an equipment lessor than a secured lender for the reasons discussed later in this article, although certain provisions of the Code that address the remedies of a secured lender are applied to an equipment lessor as well. Section 365(d)(10) of the Bankruptcy Code provides that:
'The trustee shall timely perform all of the obligations of the Debtor, except those specified in Section 365(b)(2), first arising from or after 60 days after the order for relief in a case under Chapter 11 of this title under an unexpired lease of personal property ' until such lease is assumed or rejected notwithstanding section 503(b)(1) of this title, unless the court, after notice and a hearing and based on the equities of the case, orders otherwise with respect to the obligations or timely performance thereof ' '
The language of this statute and its Congressional history have been interpreted and relied upon by bankruptcy courts in many circuits of the country. The courts have used the statute to grant an equipment lessor an automatic administrative expense for unpaid post-petition lease payments where the lessee remains in possession of the leased equipment on or after the 60th day from filing a bankruptcy petition until eventually assuming or rejecting the lease. This expense has been granted without the usual proofs required under Section 503(b)(1)(A) (to show actual, necessary costs of preserving the estate). In re: Furley's Transport, Inc., 263 B.R. 733 (Bankr. D. Md. 2001); In re: Russell Cave Co., 247 B.R. 656, 659 (Bankr. E.D.Ky. 2000); In re: The Elder-Beerman Stores Corp., 201 B.R. 759, 763 (Bankr. S.D. Ohio, 1996); In re: Brennick, 178 B.R. 305, 307 (Bankr. D. Mass. 1995). This extraordinary benefit from 365(d)(10) is not applicable to the first 59 days after the debtor's petition is filed but 503(b)(1)(A) is, according to the majority of courts particularly in cases where the lessee or debtor uses the leased equipment post-petition and gains some benefit from the property. In re: Raymond Cossette Trucking, Inc., 231 B.R. 80 (Bankr. D.N.D. 1999); In re: Thompson, 788 F.2nd 560 (9th Cir. 1986); Kinman & Kinman P'Ship v. Agristor Leasing, 116 B.R. 162 (D. Neb. 1990); In re: Furley's Transport, Inc. 263 B.R. 733, 740-41 (Bankr. D. M. 2001); In re: Muma's Services, Inc., 279 B.R. 478 (Bankr. D. Del 2002).
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