When Are Goods “Received by the Debtor” for a Section 503(b)(9) Claim?

August 7, 2017

Publication| Bankruptcy & Corporate Restructuring

The World Imports and SRC Liquidation Opinions

Section 503(b)(9) of the Bankruptcy Code[i] allows a creditor an administrative expense claim (i.e., a claim with payment priority over other pre-bankruptcy claims) for the value of goods that the debtor “received” within 20 days before filing for bankruptcy. But what precisely does “received” mean in this context? Suppose the parties agree that shipments will be free on board (“FOB”) at the origin, or the shipping point. Then, the buyer files for bankruptcy. Does the seller have an administrative priority claim for (1) all those goods that shipped from the origin within 20 days before the bankruptcy filing or (2) only those goods that physically came into the debtor’s possession within 20 days before the bankruptcy filing? Does the answer change if the seller delivers the goods directly to the debtor/buyer’s customers, such that the debtor never takes physical possession of the goods?

Two recent decisions — one by the Third Circuit Court of Appeals and the other by the Delaware Bankruptcy Court — issued within one week of each other shed light on this issue.

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