This supersedes IRM 5.17.9, The three-year "look- back" provision in 11 USC § 507(a)(8) and two-year period with regard to late returns are automatically tolled during a prior bankruptcy while the automatic stay is in effect.
Obtaining the authority to make Critical Vendor payments in Chapter 11 Bankruptcy is becoming more “critical” than ever in the early stages of a bankruptcy case.
And the danger of bankruptcy becomes greater as more trades and other entities are involved on the Project.
A client once commented to the writer, as he prepared to put out for bid, that he would have over thirty entities involved on the Project within two months and that if any of them “went under” the other twenty eight would pay the price of delay, confusion and finger pointing.
As I told him, it was up to him, as the Developer, to minimize that effect and to do it by advance planning.
The reader is strongly advised to first read our web article on Bankruptcy as well as Mechanics Liens to get an understanding of the basics of that law before proceeding further with this article.
Critical Vendor payments fall under the Necessity of Payment Doctrine, also referred to as the Rule of Necessity, which basically says that because rehabilitating a struggling business is the fundamental purpose of Chapter 11, the courts can look first at which creditors are essential to the bankrupt’s business.
These “Critical” creditors get paid first to avoid a disruption in service, while creditors with greater or equal priority interest just have to wait in line and hope that there is something left over after the Critical Vendors are paid.
The rules governing bankruptcy can be complicated, especially business reorganizations under Chapter 11, but there are some easily understood basics.
Among them is the Bankruptcy Code’s preference for grouping similar creditors together and paying the members of the group fairly as compared with each other.
The general scheme of distribution under the Bankruptcy Code has secured creditors getting the value of their collateral, then the expenses of administering the case are paid, then unsecured claims with priority (like those for back taxes or wages, for example) must be paid.
introduction In Canada legislative authority is divided between the federal and provincial governments by subject matter.
In some cases, the Winding-Up and Restructuring Act may apply.