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Michael Enright

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MONTH-IN-BRIEF (Aug 2021)

Administrative Claims That First Arise After Entry of the Confirmation Order Still Need to Comply with the Bar Date

By Michael Enright

In an apparent case of first impression, at least at the appellate level, the Third Circuit recently ruled that an administrative claim that arose after the entry of the confirmation order in a chapter 11 case, but before the effective date of the plan, is subject to a bar date order for submission of administrative claims.  In Ellis v. Westinghouse Electric Co., LLC, Case No. 20-2867 (3d Cir. August 30, 2021), Ellis, an employee of the debtor who was terminated during the period between the entry of the confirmation order and the occurrence of the effective date, filed an employment discrimination claim in federal court in Pittsburgh after the plan became effective, and asserted that the administrative claims bar date ordered by the New York bankruptcy court did not bar his claim.  Judge Ambro, who authored the Third Circuit opinion, noted that pursuant to Reading Company v. Brown, 391 U.S. 471 (1968), postpetition employment discrimination claims are “actual and necessary” administrative expenses, which could be subject to a court-ordered bar date.  “The employment discrimination claim arose out of Ellis’s employment, which without dispute benefitted the Westinghouse estate. Treating such claims as administrative expenses furthers the policy goal of § 503(b)(1)(A)—providing incentives for employees to continue working for a bankrupt company.”  However, the court went on to hold that the plain text of Sections 503 and 1141 supported the application of the bar date to claims that arose after entry of the confirmation order and prior to the effective date. “The upshot is that holders of post-confirmation, pre-effective date administrative expense claims are bound by a bar date like other holders of claims against the estate, and thus they cannot choose to bypass the bankruptcy process altogether.”  The decision brings welcome clarity to the status of such claims that arise in the interim period when the effective date is delayed, but undoubtedly will be cited in support of purported claims based on Reading for years to come.

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