Traditional DIP Order Carve Outs Do Not Cap the Administrative Claims of Committee Professionals

On January 6, 2017, Judge Robert D. Drain of the Bankruptcy Court for the Southern District of New York orally approved a prepackaged plan of reorganization (a “Prepack”) in In re Roust Corporation, et al. (Case No. 16-23786), only seven days after Roust Corporation (“Roust Corp”) and two of its affiliates, CEDC Finance Corporation LLC (“CEDC Finco”) and CEDC Finance Corporation International, Inc. (together with Roust Corp, the “Debtors”), filed petitions for relief under Chapter 11.

The Barton doctrine, which has been imposed in “an unbroken line of cases … as a matter of federal common law,” In re Linton, 136 F.3d 544, 545 (7th Cir. 1998) (Posner, J.), requires that plaintiffs “obtain authorization from the bankruptcy court before initiating an action in another forum against certain officers appointed by the bankruptcy court for actions the officers have taken in their official capacities.” In re Yellowstone Mountain Club, LLC, No. 14-35363, ___ F.3d ___, 2016 WL 6936595, at *2 (9th Cir. Nov.

The last two months have seen two key appeals in which the court was required to decide whether the tenant of a particular type of building should enjoy the statutory right to acquire the freehold of a house. This right is enshrined in the Leasehold Reform Act 1967.

The properties, and the questions for the court in each case, were quite different. What the judgments had in common was a purposive approach to interpretation of the Act.

It has been understood since the Hindcastle case in 1997 that a guarantor’s payment obligations under a lease survive disclaimer by an insolvent tenant’s liquidator.  What has been less clear is how that works, given that the tenant’s obligation to pay rent dies when the lease is disclaimed.

The High Court of England and Wales handed down judgment last week in the case of Christine Mary Laverty and others as Joint Liquidators of PGL Realisations PLC and others v British Gas Trading Limited [2014] EWHC 2721.  In an important decision for the insolvency industry, it was held that the statutory deemed contracts regime for gas and electricity supply could not be used by utilities companies to gain priority over other creditors.

A High Court ruling in England today has provided a significant clarification of the law relating to payment of rent as an administration expense.

In Leisure (Norwich) II Limited v Luminar Lava Ignite Limited (in administration), the Court confirmed that rent payable in advance prior to the appointment of administrators is not payable as an expense of the administration, even if the administrators continue to use the property. This means that the rent would not be given priority over other unsecured debts.