all drivers the judges of the bankruptcy appellate panel morning your honor mr backer may please the court my name is kyle miller i represent the committee professionals in this action i'd like to argue for ten minutes and reserve five minutes for rebuttal in which time this committee will rebut the creditors arguments the six circuit has explicitly held that carve outs are earmarked for the exclusive benefit of the chapter eleven bankruptcy professionals what's as is typical in many chapter eleven cases the professionals in this case negotiated and agreed to a carve out with the debtors secured creditor u c b what's not typical is after the reorganized debtor was forced into a chapter seven proceeding b began collecting on its liens that it made subject and subordinate to the professionals fees ignoring the carve out itself the bankruptcy court erred when it held that tho professionals were entitled to their fees they could not look to you see for satisfaction of those fees to be clear the professionals are only looking to u c b because it has collected on sums for liens which are subject subordinate to the professionals fees we believe the court should overturn the bankruptcy court for four different reasons st the explicit language of the carve out prevents u c b from retaining these songs  nd there's a strong let me ask a quick question in that regard cash collateral order is that the funds we're talking about are funds that are available as funds permit without causing and of are graphic your interpretation seems to indicate that it's a guarantee of twenty thousand dollars i was to forty thousand dollars a month regardless of whether funds permitted or not so how do we accept your interpretation without totally ignoring that sort of think your honor the the cash collateral order does provide for that  that the debtor can pay as funds become available unfortunate the funds were not available but the cash collateral orders also say payment of any amounts on account of the post petition replacement liens  out was with was it just the total fees are you defining carve out yes your honor the carve out was the the twenty thousand dollars for the debtors professionals does one schol and to be divided between the committee professionals per month during the time those thirteen cash collateral orders were were in place regardless of whether or not there were a fee sufficient that's correct your honor and i think that was the understanding of all parties including the bankruptcy court in this action and that's reflected in the fact that at the time of plan confirmation the the carve out clearly had not been paid month to month and yet the plan from the man who was supposed to pay the debt or your honor and that ended and the debtor was unable to because nd as as as the the debtor has it available however that so if that's what was intended why didn't the plan s but nowhere in the plan does it give you see the right to to jump the professionals property in this case in fact the plan says that you seabees existing liens shall be deemed in full force in effect and the liens that were existing at the time of at the time of playing conformation were subject and subordinate to the professionals carved out fees if if that's right why didn't the plan acknowledge claims of effect obviously you know part of what the bankruptcy court was doing was looking for the explicit language that i think we're searching for here but courts from looking river also in  of contract interpretation were interpreted in the order it is a matter of contract interpretation your honor what is the standard of review under oath and why in looking river tells us that when we're viewing the the way the bankruptcy court interprets their orders it is it is an abuse of discretion standard but when you look at the contract as a whole you review that to novo so so i believe that you can you can look at the different how would you articulate the difference between those two things in the contract of a as a whole would be as articulated in the contract under whatever your interpretation would indicate that the cap of the twenty thousand or forty thousand because it it's not really a a minimum reckon other words is there any scenario were under your interpretation it could have been ten thousand dollars or five thousand dollars by stone funds available or is the cap language meaningless because it was a guarantee of of the full amount no your honor i don't think the capolingua is is meaningless because and for that we have to look for the at the professional ski applications and the approved professionals fees so the rationals in this case were approved for fees in excess of the carve out in the bankruptcy court court could have approved fees under the carvel because they were they were approved in excess of the carved out amounts then the debtor should be able to look to the secured creditor is already collected on those subordinate liens for for only up to the carved out amount but you're saying that the maximum only ties into allowed for the maximum has nothing to do with the actual existence of cash collateral your honor i'd like to clarify i believe that the that it does relate to the existence of allowed fees if appropriately worked and  approved and that that it is related to cast collateral but when the order makes their preposition and post petition replacement liens subject and subordinate to the car about then or something else because yes your honor and i think i think in re looking river supports that interpretation where the dead are was placed into chapter seven it was liquidated  court explicitly references some collected through the liquidation that were added to the chapter seven estate and they said those sums are exclusively earmarked for the bankruptcy professionals from the chapter eleven proceed but wasn't that because they were contemplating the ideas actually making sure that the language was included addressing that problem your honor i don't think there's anything that says that we that there should be explicit  obviously contemplates that st the that any carve out is there to protect against liquidation the whole purpose of the carve out is so that if the if the debtor becomes becomes insolvent that the professionals are protected secondly i think we actually do have that language in the car about the court and looking river specifically cited to the words that could be paid at any time and in paragraph five of the carve out it does say it does in our carve out we do have that that you see these liens subject to the carve out are in force at any time counsel may please the court it was scott backward from bowling green representing the apple united cumberland bank which was the principal secured creditor in the chieftain steel case we believe that the bankruptcy court decision in this case is not going to as been suggested in the brief hamper reorganization or spur disputes in the future of the would compromise the effective administration of the bankruptcy process suggested i think the impact of this particular decision by judge boyd is probably limited just to the facts in this case because of the way the cash collateral order was written and limited and more importantly by the way that the plan to reward his ation was written in the language that clearly was missing to achieve the result desired here not to blow this case out of proportion but if there is a cautionary tale it is a warning to the parties and counsel that if professionals are going to look to the secured creditor to pay fees that that language should be clear and unambiguous i think that's especially true in this case considering the nature of the facts we must remember that there were actually two debtors in this case who filed at different times but were subsequently administrative ministry to billy consolidated chieftain steele for whom the professionals were debtors counsel and committee counsel but then the companion company floyd industries which is not at issue here today those professionals have not made any sort of claim over the beyond what they have been paid in the plan it was intice a pated that those two entities post confirmation would merge and the new reorganized debtor the payroll company eight months later when an involuntary petition is filed so we now have accounts receivable inventory that belong to the reorganized debtor post confirmation so we have all of these assets that are now in essence commingle between post confirmation pretty confirmation to debtors merged into one entity because of the nature of those facts and the interests of pated merger there needed to be as referenced in the past collateral water and then the post confirmation lanes that were extended as part of the cash collateral order they carried through the case and then subs and we carried through confirmation reconfirmation where were the banks listing liens subordinate to some extent to the committee and better professionals free confirmation to some extent they would have been subject to the requirement scuse me that there would not have been an overdraft created each month under the budget it was that twenty thousand dollars now was part of the budgeting process that turned what the debtor could afford on a monthly basis so as not to create any sort of overdraft which would have been here for the bank because not only were we the secured creditor where the funds being set aside or are you contemplating that to the extent of cask lateral you would be required to make sure that twenty thousand dollars would be available for free i was never the thought of the bank that it would have any responsibility or any need to segregate these funds it was a dissipated as the order says that the debtor shall pay this money so long as the de does not create an overdraft if the debtor do that it is my understanding yes that there was monies that were paid from time to time for a confirmation thus the reference to the fact that money was held in escrow and i know from other reporting even post confirmation the debtor paid additional fees although not as much as was awarded by the court the it is the give deference to the extent that judge lloyd interpreted her orders the cash collateral order and the order of confirmation but i think the contract itself as i understand the law would be a did novo review and i think  you asked the the right question should there not have been follow up language or additional language in the order of confirmation there are plenty of opportunities in this order to clarify that the carve out would continue or that the creditor was going to be subject post confirmation to some responsibility clearly paragraph three point five that dealt with the professional fees could have had the rd provision if the debtor did not pay the creditor which it would if they had the responsibility to pay those over four in the debtor could have also contained a provision subject to the carve out that language is not there there is a paragraph where united cumberland bank receives release various claims language could have been added just to clarify that nothing here and shall be construed a release of the obligations under a cash collateral order certainly all of that should have been at the in the plan so that that responsibility on the creditor could have been taken in consideration when we decided whether or not to vote on the plan now i think to some extent that this argument has only arisen because the debtor has been placed into it in a voluntary bankruptcy because the court and only need to look at the conduct of the professionals post confirmation to see how they really interpreted the  if the order says what they wanted to say that they were to be paid within forty five dollars days i would expected that some demand would have been made upon the bank before or immediately after that forty five dollars day period pay over what they are entitled to under the carve out and the professional fees order approving for the committee which was in august after confirmation bigots docket number three hundred and three the the debtor and the professionals committee for the committee outlined a payment scheme where the debtor was going to pay the professionals and apes installments beginning september one two thousand and seventy no reference to the obligation of the bank to make any payments when the debtor defaulted on that water demand was made by the professionals attorney to the debtor no demand was made upon the secured creditor for payment at that time the st time that any sort of demand was made was when three days after the involuntary petition was filed including one of the petitioning creditors being counsel for the creditors committee there's this information in the record before us yes that is i would also like point out too that the cash collateral order with the way it is written i do not believe the results that the professionals want to achieve clearly the bankruptcy court put emphasis on the language that the debtor may pay the carve out funds without overdraft i think that was significant limiting language in the dip it in the decision of judge the way it should also be noted that there was no provision in these waters to address the situation of what if the debtor was unable to pay these under the cash flow there was no  provision that if the debtor could not pay the twenty thousand dollars or forty thousand dollars in any given month that the shortfall carried forward to the next month there was no provision that if the debtor was that period of time i believe that was certainly aren't that's why i believe how the water got to be interpreted with that living language says they were entitled out of the current cash flow twenty thousand dollars a month to be set aside in escrow pending approval of the fees is that a reasonable interpretation given that under the totality of circumstances as most would be continuing to work it excuse me and although they could be doing accounting what else merely the fees to be allowed wouldn't be known until later and so under your interpretation it seems to lead to looking at work that was done and reallocating it to make sure that you get your twenty thousand dollars as opposed to read them all together to make sure the twenty thousand dollars is accumulated awnings if if i understand the question i think that it was the intent of the parties that the debtor would make these payments and the professionals would escrow that pending the approval it was never intended to be a cap on the total amount of professional fees that could be sought only a cap on the amount that could be charged as against the secured creditors collateral so you would have known men at the beginning depending on how long the case ran that your collateral would be carved out to the extent of twenty thousand dollars why does it make sense to limit that in a particular month of the fees if you're anticipating that that twenty thousand dollars amount into your collateral so why say for one month if the fee is got up to ten dollars limited to the ten as opposed to if it's eleven month and thirty the next month and the professional will have the benefit of that extra ten because there's no loss there because you contemplate it when you set the limit so why why should we interpret to be twenty thousand just in that period of time and then the professionals potentially lose the benefit of the value of the work that they did that particular exceeded th well i don't think it's a question of whether they have lost the value of the work because the amount over and above is subject to still being paid by the debtor or from assets other they and the collateral of the bank this merely serves as a limit as to what extent the bank's collateral could be surcharged phone i'm working for on a monthly basis tak consideration the current cash flow of the debtors at that time that's frankly how much we thought the debtor could stomach without causing the bank the potential of having to deal with an account that was going to certainly coming to an end upon confirmation i think the plan of confirmation in this case of the plan realisation that's confirmed is the factor that distinguishes this case from the rights of the parties they to court has to give the like to get paid and certainly are under stay on and have been there and but this one lawyer once told me representing better shows like doing contingency fee work without the upside but  had not been filed or proof so stating some some certain in the plan that would create and intentionally put a lien against those specific time sums would not be appropriate in light of the fact that the applications have not yet been filed but more to the point the plan does allow the existing liens of the lender and the existing liens of the lender in no way can one read those lanes without reading the language that they are subject to the carve out that was negotiated and the cash collateral orders your honour's made a good point that one cannot and a law firm cannot practically work twenty thousand dollars a month and stop until the next month there is an expectation that that will be applied toward their final fee and to make sure that it's clear there is a cap and that cap is the twenty thousand dollars a month through the duration of that case that cap is then mathematically calculated and some of the professional fees that have been approved and authorized for payment by the court are in excess of that cap and the professionals are not seeking payment from u c b on those funds they are simply seeking that u c b pay to the professionals the proceeds st proceeds of the liquidation of the collateral that they have proceeded to do and i submit that the professionals were appropriate in their follow up in seeking those funds both from the debtor and from u mr backer makes several several arguments saying that in his opinion a case like this or a decision like the underlying bankruptcy court's decision would not hamper the reorganization process and as a professional who is in the spot i can certainly say that i believe that it does as the court recognized and looking river and as other courts have recognized in different cases that have been cited in our papers a carb out provides a a guarantee in assurance for  good work that they do to serve their clients will be paid or at least some portion of those funds will be paid me but if you use the term guarantee if that's what was really intended why didn't i professionals ask for anywhere that the lane is subject to the lane being granted freshens it doesn't use the word guarantee anywhere other words you're you're warning us to interpret carve out as having some unique meaning that has nothing to do with the to the questions that your honour's collectively you asked in terms of documentation and whether the debtor or the other profession or whether the professionals that appropriately documented that implant grow to the professional submit that they did the secured lender or it was a final order it was subject to the carve out and used to be at all times having to celine would be subject to that carve out the plan allowed for their existing liens it did not amend the cash collateral order it did not include u c b as a released party it did not contain a release of u c b by the professionals and it did reference payment to the professionals from the carvel and then after of the plan was approved the professional submitted their fee applications referencing the carve orders approving their fees reference payout from the carve out which is completely inconsistent with the underlying court's decision that the plan effectively negated the carve out because post confirmation orders referenced payment from that very contractual right so your argument is basically that the twenty thousand dollars should continue to be rolled over or the fees after they have been finally applied should be u c b should be subject to each twenty thousand dollars limit and then whatever funds it would be our st language to reference those orders in the final plan confirmation or if that was not the intent your honor that's correct and there is a cap and there is a debt if there is a stopping point we are not see and we are only seeking those monies that have been recovered from the proceeds of sale of debt or platter we're not asking u c b to come out of pocket per se to pay these fees the point of the carve out is to protect professionals in cases like this and it is for these reasons that the bankruptcy courts order denying the motion to compel to payment and turnover should be reversed thank you for your time thank you for your