Chapter 11 Theory & Practice: A Guide to Reorganization

Chapter Contributor, January 23, 2004

Pamela Smith Holleman, a senior associate in our Bankruptcy Practice Group and Litigation Department, is a contributor to the latest edition of Chapter 11 Theory & Practice: A Guide to Reorganization, James F. Queenan, Philip J. Hendel, Ingrid M. Hillinger (eds.), LRP Publications (2003). She is the author of a chapter entitled "Priority Claims," which provides a comprehensive analysis of the treatment of administrative expenses and other priority claims in bankruptcy.

Priority rankings are a frequently litigated and dynamic area of bankruptcy law. Administrative expense priority status is the ultimate goal for most unsecured creditors. The Bankruptcy Code defines administrative expenses as "actual, necessary costs and expenses of preserving the estate." The Seventh Circuit Court of Appeals put its own spin on the Code definition in of In re Jartran, 732 F.2d 584 (7th Cir. 1984). Jartran raises an often insurmountable barrier to administrative priority status for a non-debtor party to an executory contract - even where the non-debtor delivers goods and services to a postpetition debtor that enrich the estate. The case has won wide acceptance in the two decades since it was decided, producing a series of paradoxes and a patchwork of exceptions that sometimes turn the law of restitution on its head. A creditor can still salvage its priority, however, by learning to adopt a Jartran view of the world.