On April 8, 2014, Chief Bankruptcy Judge Frank R. Alley, III for the United States Bankruptcy Court for the District of Oregon found that Sunstone Business Finance, LLC’s claim against debtor C&K Market, Inc. did not constitute an administrative expense claim.  The claim arose from a breakup fee for proposed DIP financing after C&K selected an alternative DIP lender.

The Court denied Sunstone’s request for an administrative claim for two reasons.  First, the Court found that the breakup fee did not arise from a transaction with a debtor in possession because the parties executed the DIP term sheet prepetition.  Second, the Court found that Sunstone, as a potential lender, did not provide a direct and substantial benefit to the estate because the alleged benefits either occurred prepetition or were too indirect and intangible to qualify for priority treatment.  If this opinion were to gain acceptance beyond this case, it could chill prepetition offers to serve as new DIP lenders, or possibly even affect the market for stalking horse bidders in a section 363 sale.  In re C&K Market, Inc., No. 13-64561-fra11 (Bankr. D. Or. Apr. 8, 2014) [Dkt. No. 786].  Read More.