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The dirty little secret of critical vendor orders: the hidden preference risk that lurks!(credit column)
Introduction
The ruling of the United States Seventh Circuit Court of Appeals in the Kmart case, which the United States Supreme Court recently let stand, upheld the rejection of Kmart's preferred treatment of some 2,300 suppliers, so called "critical vendors" with prepetition claims exceeding $300 million. The Seventh Circuit noted that the bankruptcy court lacked the equitable power under Section 105(a) of the Bankruptcy Code, or any power under the outmoded "necessity of payment doctrine", to approve payments of critical vendors' prepetition claims. However, the Seventh Circuit did leave the door open just a little bit by suggesting that the bankruptcy court ...
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