Opinion ID: 666058
Heading Depth: 4
Heading Rank: 1

Heading: The following expenses and claims have priority in the following order:

Text: 14 (1) First, administrative expenses allowed under section 503(b) of this title, and any fees and charges assessed against the estate under chapter 123 of title 28. 15 . . . . . 16 11 U.S.C. Sec. 507. Section 503 defines administrative expenses as including the actual, necessary costs and expenses of preserving the estate as well as postpetition taxes and penalties associated with those taxes: 17 (a) An entity may file a request for payment of an administrative expense. 18 (b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including-- 19
20 (A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case; 21 (B) any tax-- 22 (i) incurred by the estate, except a tax of a kind specified in section 507(a)(7) of this title; or 23 (ii) attributable to an excessive allowance of a tentative carryback adjustment that the estate received, whether the taxable year to which such adjustment relates ended before or after the commencement of the case; and 24 (C) any fine, penalty, or reduction in credit relating to a tax of a kind specified in subparagraph (B) of this paragraph; 25 . . . . . 26 11 U.S.C. Sec. 503. 27 No provision of the Code specifically provides for the payment of interest on administrative expenses. Section 726 is the only provision which expressly provides for interest: 28 (a) Except as provided in section 510 of this title, property of the estate shall be distributed-- 29 . . . . . 30 (5) fifth, in payment of interest at the legal rate from the date of the filing of the petition, on any claim paid under paragraph (1), (2), (3), or (4) of this subsection; 31 . . . . . 32 11 U.S.C. Sec. 726. 33 Section 726(a)(5), the fifth priority, apparently codifies the solvency exception developed by case law prior to the enactment of the Bankruptcy Code. In re Boston & Maine Corp., 719 F.2d 493, 496 (1st Cir.1983), cert. denied sub nom. City of Cambridge v. Meserve, 466 U.S. 938, 104 S.Ct. 1913, 80 L.Ed.2d 461 (1984). Under this exception, where the debtor ultimately proves solvent, a balance of the equities dictates that creditors may receive any surplus, including claims for interest arising postpetition, ahead of payment to the debtor. City of New York v. Saper, 336 U.S. 328, 332 n. 7, 69 S.Ct. 554, 556 n. 7, 93 L.Ed. 710 (1949). 4 The legislative history states that section 726(a)(5) provides that postpetition interest on prepetition claims is ... to be paid to the creditor. S.Rep. No. 95-989, 95th Cong., 2d Sess. 5, reprinted in 1978 U.S.Code Cong. & Admin.News, 5787, 5883. Whether section 726(a)(5) may be applied to claims for postpetition interest on claims arising postpetition is arguably ambiguous. 5 The legislative history is barren of any mention of according interest priority on trade claims pursuant to section 726(a)(5). 34 It is noteworthy that the right of an administrative claimant to interest is not specifically provided for in 11 U.S.C. Sec. 503(b)(1). Rather, if a right to such postpetition interest is to be found, it must be derived from a broad interpretation of that section's use of the term including. As is evident from the Code's Rules of Construction, the use of the word including is not intended to be limiting. 11 U.S.C. Sec. 102(3). Thus, by implication, Congress did not intend section 726 to be exhaustive, suggesting that the enumerated category for administrative expenses does not necessarily preclude judicial construction to permit other claims reasonably demonstrated to be actual, necessary costs of administration, including interest. 6 See In re Bergin Corp., 77 B.R. 210, 212 (Bankr.E.D.Wis.1987); In re Callister, 15 B.R. 521, 526 (Bankr.D.Utah 1981). 35 Despite the expansiveness with which the administrative expense category may be treated, such judicial construction is limited by the countervailing doctrine that section 503 priorities should be narrowly construed in order to maximize the value of the estate preserved for the benefit of all creditors. Otte v. United States, 419 U.S. 43, 53, 95 S.Ct. 247, 254, 42 L.Ed.2d 212 (1974). In determining how to best preserve the estate, two factors must be balanced: maintaining the estate in as healthy a form as possible for the benefit of creditors while allowing essential costs of administering an ongoing business venture to be paid up front, thereby giving the debtor its best shot at emerging as a vital concern. In re Dant & Russell, Inc., 853 F.2d 700, 707 (9th Cir.1988). Thus, a balance must be struck between the goal of maximizing the estate and the goal of encouraging on-going business with third parties to facilitate the continued operations of the business, and thus the reorganization. Id. at 706-07. That balance may never be struck to denigrate the clear intent of section 503(b)(1)(A) which is to satisfy the actual and necessary costs of preserving the estate. Although section 503(b) should be read narrowly to preserve the debtor's scarce resources, 7 the ultimate goal of Chapter 11 is to marshall those resources to provide the best possible opportunity for a successful rehabilitation which will ultimately redound to the benefit of all creditors.