'Would You Like Fries With That?' Goods vs Services Under § 503(b)(9) of the Bankruptcy Code (The Bankruptcy Strategist)

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Five years have passed since § 503(b)(9) was added to the Bankruptcy Code, creating a new category of

administrative priority claims and a new set of rules for determining whether claims are entitled to receive that priority. In this time, courts have gone a long way in defining the parameters of the section’s coverage and applying the legal framework to facts for how to distinguish between goods and services and how to treat mixed goods and services transactions. Courts have provided useful guidance to parties trying to determine whether a claim is entitled to administrative priority status, particularly in the context of utilities claims. Despite the helpful guidance to date, questions remain. Court decisions on this topic have not yet addressed many types of claims common in bankruptcy. Moreover, while some courts have applied the “predominant purpose” test, others have bifurcated claims into goods and services, thus granting administrative priority treatment for at least a certain portion of the claim. Additionally, there is no general consensus whether courts should use a single, uniform definition of “goods” or whether courts should look to state law for guidance in interpreting the term. Future court decisions may provide additional guidance on these open issues.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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