There are generally three types of claims in a bankruptcy proceeding: unsecured claims, secured claims and administrative expense claims. Section 503 of the Bankruptcy Code governs the allowance of administrative expense claims. Section 503 provides that “after notice and a hearing, there shall be allowed administrative expenses…, including the actual and necessary costs and expenses of preserving the estate.” 11 U.S.C. § 503(b)(1)(A). A creditor who seeks to have its claim paid has an administrative claim, and therefore ahead of the general unsecured creditors, bears the burden of establishing that its claims qualifies for priority status. In re New Century TRS Holdings, Inc., et al, 446 B.R. 656, 661 (Bankr. D. Del. 2011). Courts generally apply a two-part test in deciding whether a claim qualifies as an administrative expense: (1) whether the expense arose from a post-petition transaction between the creditor and debtor; and, (2) whether the expense was “actual and necessary” to preserve the estate. Id., citing In re Unidigital, Inc., 262 B.R. 283, 288 (Bankr. D. Del. 2001). Claims which do not constitute an administrative expense are often treated as general unsecured claims which are payable in the ordinary course with other unsecured creditors of the estate. In re Arrow Carrier Corp., 154 B.R. 642, 646 (Bankr. D. N.J. 1993).
Aside from the allowance of an administrative claim, a common issue concerning creditors is the timing of payment of the administrative claim. Although Section 503 of the bankruptcy code provides that an entity can request payment of an administrative expense claim, the section does not address the question of when a claim for administrative expense is to be paid. In re HQ Global Holdings, Inc., 282 B.R. 169 (Bankr. D. Del. 2002) (further citations omitted). The determination of the timing of payment of an administrative expense claim is within the discretion of the bankruptcy court. Id., citing In re Colortex Industries, Inc. 19 3d 1371, 1384 (11th Cir. 1994). In deciding the timing of payment for an administrative expense claim, one of the central factors courts consider is the goal of the bankruptcy court to have an orderly and equal distribution among creditors and a need to prevent a “race to a debtor’s assets.” Id. Distributions to administrative claimants are generally not allowed when the estate may not be able to pay all administrative expenses in full. Id., citing In re Standard Furniture, 3 B.R. 527, 532 (Bankr. S.D. Cal. 1980). Even though courts generally wait until after confirmation before allowing payment on administrative expenses, courts nevertheless have discretion to consider other factors in deciding whether to grant immediate payment. These factors include the particular needs of the administrative claimants, as well as the length and expense of the administration of the bankruptcy proceeding. Id., at 173, citing In re Reams Broadcasting Corp., 153 B.R. 520, 522 (Bankr. N.D. Ohio 1993).
In HQ Global Holdings, the Delaware Bankruptcy Court considered whether commercial landlords of the debtor are entitled to the immediate payment of their administrative rent claims. The court in HQ Global agreed with the debtor “that any decision on the amount and payment of the [administrative rent] must await the debtor’s decision whether to assume or reject leases.” Id. at 175. The court reasoned that if the debtor assumed the landlord’s lease, such assumption would resolve the issue of the landlord’s administrative rent claims. By that, if the debtors assumed the leases, then the debtor would be required to cure any defaults and make all past due rent payments under the lease. Id.