Favorable treatment for critical vendors' pre-petition unsecured trade claims: is the pendulum is swinging the other way? (Business Law).(Brief Article)

Introduction

As a general rule when a debtor files for bankruptcy, a trade creditor cannot enforce payment of its pre-petition claim as a result of the automatic stay. The creditor's claim falls to the bottom of the claims priority ladder, and the creditor usually ends up receiving little or no distribution.

In recent years, more and more courts have approved the debtor's payment of the pre-petition unsecured claims of favored "critical vendors" whose goods and services the debtor considers necessary for the survival of the debtor's business. In exchange, these vendors usually agree to continue extending credit to the debtor. As a result, the vendors ...