Is the Spark Gone?

Section 503(b)(9) of the Bankruptcy Code gives a massive boost to creditors that sold goods to a financially distressed customer shortly before the customer’s bankruptcy filing. While claims for goods sold before a bankruptcy filing are typically treated as general unsecured claims that often receive pennies on the dollar (or less!) in bankruptcy, section 503(b)(9) grants administrative expense priority to claims for goods sold and delivered during the 20 days before the bankruptcy filing—significantly increasing the likelihood of full payment of such claims.

Since the section 503(b)(9) priority only applies to the sale of goods and not the provision of services, litigation often ensues as to whether a particular product is, in fact, a “good.” A frequently litigated issue is whether electricity is a good or a service for purposes of section 503(b)(9). Historically, courts have been roughly evenly split on the issue.