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When there is a secured creditor secured by all of the postpetition assets of the estate (usually pursuant to a DIP financing order, because otherwise postpetition receivables would be free and clear pursuant to § 552(a)), there are no funds available to pay professionals engaged by the debtor or creditors' committee. This is because a secured creditor's collateral may only be charged administrative expenses that directly benefit the creditor, pursuant to § 506(c).34 Merely keeping the debtor alive as a going concern is probably not a sufficiently direct benefit to support such a surcharge.35 Consequently it is necessary to negotiate and include in the DIP financing order a "carveout" for such professional fees, permitting a surcharge that is usually expressly limited in amount.
Lenders and debtors can anticipate an objection from the U.S. Trustee's office if the carveout does not also include the committee's professionals, or is not of sufficient size to permit them adequately to represent the committee. The Delaware new local rules suggests hostility to any
32 E.g., In re Saybrook Manufacturing Co., 963 F.2d 1490, 1491-92, 1495-96 (11th Cir. 1992)(impermissible
because it is not authorized under § 364 and is contrary to the fundamental priority scheme of the Bankruptcy
Code); In re Sun Runner Marine, Inc., 945 F.2d 1089 (9th Cir. 1991); In re Willingham Investments, Inc., 203
B.R. 75 (Bankr. M.D. Tenn. 1996); In re Monach Circuit Industries, 41 B.R. 859 (Bankr. E.D. Pa. 1984). But see In re Cooper Commons, LLC, 430 F.3d 1215 (9th Cir. 2005)(finding appeal moot due to § 364(e) and lack of stay pending appeal, disagreeing with contrary conclusion in Saybrook).
In re FCX, Inc., 54 B.R. 833, 841-41 (Bankr. E.D. N.C. 1985); In re Antico Manufacturing Co., Inc., 31 B.R. 103 (Bankr. E.D.N.Y. 1983); In re Flagstaff Foodservice Corp., 16 B.R. 132 (Bankr. S.D.N.Y. 1981).
34 General Elect. Credit Corp. v. Levin & Weintraub (In re Flagstaff Foodservice Corp.), 739 F.2d 73, 76 (2nd Cir. 1984).
35 Precision Steel Shearing, Inc. v. Fremont Financial Corp. (In re Visual Industries, Inc.), 57 F.3d 321 (3rd Cir. 1995); United Jersey Bank v. Miller (In re C.S. Associates), 29 F.3d 903 (3rd Cir. 1994).
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