The Bankruptcy Hotline

The Bankruptcy Appellate Panel for the Eighth Circuit has ruled that where a debtor failed to secure a final order establishing permanent super priority status, it was not entitled to rely on an interim order allowing a Chapter 11 debtor to incur post-petition debt on a super priority basis. In re Visionaire Corp., No. 03-6021EM (Oct. 9).

The debtor filed a motion to incur up to $250,000 in unsecured debt from the lender on a super priority basis, which was approved by the bankruptcy court pursuant to Section 503(b). The lender was given administrative priority with respect to the loan proceeds with priority over all other administrative expense claims other than professional fees of counsel for the Debtor, counsel for the committee and the U.S. Trustee. The lender then made a series of advances to the debtor within 15 days of the bankruptcy court's order and another $85,000 at a later date. The lender filed a proof of claim, seeking payment of principal and interest as a priority administrative expense claim pursuant to Section 364(c)(1). The case was converted to Chapter 7, however, and the Chapter 7 trustee filed a motion to amend or clarify the bankruptcy court's earlier order. The bankruptcy court found that exceptional circumstances necessitated relief from judgment and entered a final order holding that the lender's 364(c)(1) priority administrative expense claim was subordinate to Chapter 7 administrative expenses.