(PITTSBURGH) July 11, 2017 – The Third Circuit has laid the disputes over the definition of “received,” as used in Section 503(b)(9) of the Bankruptcy Code, to rest. In a precedential opinion filed July 10, 2017, the Third Circuit reversed the decisions of the Bankruptcy and District Courts for the Eastern District of Pennsylvania by holding that “receipt as used in 11 U.S.C. § 503(b)(9) requires physical possession by the buyer or his agent.”
Bernstein-Burkley Co-Managing Partner, Kirk Burkley, acted as counsel for the appellants in this case, Haining Wansheng Sofa Company and Fujian Zhangzhou Foreign Trade Company (the Creditors). The Creditors sold furniture and similar goods to World Imports (the Debtor), who later filed a Chapter 11 bankruptcy petition on July 3, 2013.
“Legal intricacies can make it extremely challenging for creditors that ship goods internationally or cross-country to determine whether or not their claims are entitled to administrative priority treatment. In this case, it was Bernstein-Burkley’s in-depth understanding of the law and the U.S. Bankruptcy Code, and zealous representation of our client’s interest that ensured a successful result and maximum recovery,” Burkley said.
The Honorable Thomas M. Hardiman begins his opinion, “This appeal involves a question of bankruptcy law that has important ramifications for a creditor that sells goods to a debtor soon before the debtor files a Chapter 11 bankruptcy petition.”
Under 11 U.S.C. § 503(b)(9), a creditor may recover as a priority administrative expense the value of goods “received by the debtor within 20 days before” the bankruptcy petition is filed. In a previous case, the Court had interpreted a related provision of the Bankruptcy Code ((11 U.S.C. § 546(c)), and held that “receipt” occurs when the buyer takes physical possession of the goods. In this case, the court had to determine if the word “received” in § 503(b)(9) similarly requires physical possession. The Third Circuit ruled that it does.
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