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Moreover, even if they have just been paid on a payroll day immediately prior to the filing, the bank may appropriately refuse to honor any such checks that were not cashed prior to the filing. Consequently debtors frequently seek two first day orders, one permitting payment of prepetition wages, either up to or in excess of the priority amounts, and the other authorizing and requiring banks to honor any prepetition payroll checks.
Even after the more stringent tests for critical vendor payments suggested by KMart9 and CoServ,10 the bankruptcy court for the Northern District of Texas authorized payment of prepetition employee wages up to the priority amounts.11 The only requirement that opinion seemed to impose as a condition was that no senior creditor objects, and the court noted that generally the only senior creditors are secured creditors and estate professionals.12
Practical and drafting problems frequently arise in connection with both of these kinds of orders. Banks may not be able to distinguish payroll checks from other kinds of prepetition payments, or may refuse to make the effort to do so, so the debtor may need to seek authority for the bank to honor all outstanding checks. And debtors' motions frequently seek authority to pay all prepetition wages and other benefits, without regard to the priority amounts, while inadequately identifying the amounts that may exceed the priority amounts, or the amounts that could be paid in severance payments, on account of accrued vacation entitlements, or to retirement plans. These latter amounts could be significant if senior officers of the debtor are included within the defined scope of the "wage" order.
9 In re Kmart Corp., 359 F.3d 866 (7th Cir. 2004).
10 In re CoServ, L.L.C., 273 B.R. 487 (Bankr. N.D. Tex. 2002).
11 In re CEI Roofing, Inc., 315 B.R. 50 (Bankr. N.D. Tex. 2004).
12 Id. at 60.
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