Wolfson Bolton PLLC Wolfson Bolton PLLC

Creditors’ Committee’s Legal Fees Not Subject to Pre-Confirmation Cap

A Delaware Bankruptcy Court recently held that an unsecured creditors' committee's legal fees were not subject to a pre-confirmation cap contained in a financing order. In In re Molycorp, Inc., Case No. 15-11357 (Bankr. D. Del. Jan. 5, 2017), the unsecured creditors' committee's attorneys filed an application seeking $8.5 million in fees for services performed in investigating and prosecuting certain causes of action on behalf of the debtors. The committee filed the application after confirmation of the debtors' plan. Before confirmation of the plan, however, the court entered a financing order capping the committee's legal fees at $250,000. Thus, the issue before the court was whether the pre-confirmation cap applied to the committee's application. In analyzing the application, the court noted that, as a general rule, administrative expenses must be satisfied from assets of the estate not subject to liens. Put another way, "where there are insufficient unencumbered assets with which to pay administrative expenses, professionals employed by the debtors or by creditors' committees may not ordinarily look to secured creditors' collateral for payment." To facilitate the chapter 11 process and induce professionals to represent a committee, the secured lender usually enters into an agreement under which it subordinates its liens and claims to a limited amount of professional fees. In the event a plan is not confirmed and the case is administratively insolvent, the professionals' fees are capped at that limited amount. According to the court, however, this changes after the plan is confirmed, as 11 U.S.C. 1129(a)(9) requires that each holder of an administrative claim receive full payment of their claim. The court went on to hold that "if the secured parties desire confirmation, the administration claims must be paid in full in cash at confirmation even if it means invading their collateral." Thus, while professional fees may be capped prior to plan confirmation, they must be paid in full post-confirmation to comply with the bankruptcy code.

Categories: 
Related Posts
  • Shareholder Suits after Cash-Out Mergers: Direct, Derivative, or Dead on Arrival? Read More
  • Expiration of the Coronavirus Aid, Relief, and Economic Security (CARES) Act Read More
  • Client Alert: GM Imposes New Warranty Chargeback Process Read More