Critical Vendor Update by ProQuest


The bankruptcy courts continue to struggle over their power to approve a debtor's payment of the pre-petition claims of certain favored critical vendors who are supposedly essential to the success of the debtor's business and reorganization prospects. While the bankruptcy courts in Delaware and the Southern District of New York have been approving critical vendor orders, other courts have imposed more stringent requirements resulting in denial of critical vendor relief. Prior to the Bankruptcy Code, the courts had granted critical vendor motions based on the "necessity of payment" doctrine that the US Supreme Court had recognized in its 1882 decision in Miltenberger v. Loganspon Railway. The courts relying on the "necessity of payment" doctrine and Bankruptcy Code Section 105 in granting critical vendor motions had generally conditioned the debtor's payment of pre-petition critical vendor claims upon the creditors' agreement to continue extending credit to the debtor during the Chapter 11 case.

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