As discussed in the prior post, creditors may receive administrative-expense priority for “the value of goods received by the debtor within 20 days before” the debtor’s bankruptcy filing “in which the goods have been sold to the debtor in the ordinary course of business.” 11 U.S.C. § 503(b)(9).
The question then becomes what constitutes a “good” under Section 503(b)(9)?
Bankruptcy Courts have consistently held that the Uniform Commercial Code’s (UCC) definition of a good controls for purposes of Section 503(b)(9). Under the UCC, a good is anything that is moveable. As such, to qualify for priority treatment under this section, the good at issue must be something that is moveable. For example, “services” provided fall outside of the scope of Section 503(b)(9) treatment.
At times, whether a product is a “good” or a “service” may not be readily apparent. For example, in the case of In re Goody’s Family Clothing, Inc., 401 B.R. 131 (Bankr. D. Del. 2009), the creditor seeking Section 503(b)(9) administrative priority was an intermediate vendor that received textiles from a supplier, would unpack the textiles, inspect them, ticket and repack them before shipping the textiles to the debtor. The Court found that the creditor in fact provided services but not “goods” to the debtor, and therefore was denied its Section 503(b)(9) claim.
Subsequent posts will address further issues relating to Section 503(b)(9) claims, such as the timing of payment for allowed Section 503(b)(9) claims, and reclamation rights of a creditor within the 45 day period prior to a debtor’s filing.
Carl D. Neff is a bankruptcy attorney with the law firm of Fox Rothschild LLP. Carl is admitted in Delaware and regularly practices before the United States Bankruptcy Court for the District of Delaware. You can reach Carl at (302) 622-4272 or at firstname.lastname@example.org.