2006 NORTON BANKRUPTCY LAW SEMINAR MATERIALS

CHAPTER 11 OPERATIONS

By Hon. Randolph J. Haines

Some of these problems are evident in Metalsource,¹³ where the debtor had paid out more than a million dollars in severance payments pursuant to a first day wage order before it was challenged a year and a half later and after a liquidating plan had been confirmed. The court held that the order was a final order rather than interlocutory, and therefore modification should have been sought within ten days under Rule 9023 (incorporating F.R. Civ. P. Rule 59), and was subject to modification only within the time limits and on the grounds specified in Rule 9023, incorporating F.R. Civ. P. Rule 60. The court also held that the common practice of providing notice of the first day order only after the fact, within 24 hours, satisfied due process. The court therefore declined to modify the wage order retroactively. But in doing so it commented that the debtor's officers and attorneys "owed the court a duty" to monitor this exception to Code priorities, should have provided cost estimates when the order was sought, and should have been "more selective and discriminating" because "not every employee was indispensable to its operation."

C. Paying Critical Prepetition Vendors.

A debtor may rely on certain vendors that either cannot be replaced should they refuse to supply, or whose willingness to supply goods on credit is essential to debtor's ability to survive or finance its operations. Sometimes such vendors are owed large prepetition unsecured debts, and threaten to refuse to continue supply goods even for contemporaneous cash payment (e.g.,

C.O.D. or letter of credit), or refuse to continue supplying on prepetition credit terms. The debtor may believe that either of these changes from prepetition business dealings would

¹³In re Metalsource Corp., 163 B.R. 260 (Bankr. W.D. Pa. 1993).

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