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Administrative Claims: Thinking Outside the Box to Get Paid

On Behalf of | Sep 17, 2020 | Bankruptcy, Debt, Firm News

Chapter 11 Bankruptcy Claims

By: Laura Day DelCotto

A recent decision from Louisiana involving work on an abandoned oil and gas rig got me thinking about some of the non-routine types of administrative claims in chapter 11 bankruptcy. It is always worth exploring if you might have any such claim, since they are paid first out of any unencumbered assets and often the only claims to get paid in chapter 11 cases of recent times.

Of course, this oil and gas industry creditor had to spend a pretty penny chasing the claims allowance for years and through multiple appeals.   Those with the money don’t like to part with it in order to pay admin claims.

Related Case Study

In In re Whistler Energy II, LLC, 2020 WL 3580172 (Bankr. E. D. La. 2020), the oil and gas debtor owned a drilling platform in the gulf. They contracted with a supplier to provide the rig machinery, engines, generators, and crew. After a fatal accident on the job site, the federal regulators shut down the drilling on the platform. The debtor also abandoned the work site.

The supplier filed a motion to compel the debtor to either assume or reject the contract. The contract was rejected by order dated June 20, 2016. About a month later, the debtor asked the supplier for a work plan to demobilize the rig. The supplier provided the plan about 6 weeks later. The plan was approved by the federal regulators as required by law. The demo work started soon after. The supplier remained unpaid for this work which was required by law to be completed by the debtor.

Bankruptcy Court Decision re Claims

The litigation over the allowance of the claim as an administrative claim took over 4 years through various rulings and appeals. At the end of the day, the bankruptcy court undertook a very fact-intensive analysis to end up splitting the baby, by analyzing whether the debtor “induced” the supplier to stay on the platform; for how long the supplier stayed to service the debtor’s needs;  and the actual and necessary costs incurred. The Court dug deep into the various dates: the supplier delayed for a certain time, and could not be compensated, but from the time it  submitted the demobilization plan forward (including while waiting for regulatory approval), the administrative clock was ticking.

If a debtor ever asks you to do something post-bankruptcy, get it in writing and begin to build us your evidence for an administrative claim. It may pay off in the end.

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