In re Transouth Truck Equipment, Inc.

Decision Date30 June 1988
Docket NumberBankruptcy No. 1-86-00527.
Citation87 BR 937
CourtU.S. Bankruptcy Court — Eastern District of Tennessee
PartiesIn re TRANSOUTH TRUCK EQUIPMENT, INC., Debtor.

Harold L. North, Jr. of Ray & North, P.C., Chattanooga, Tenn., for trustee in Bankruptcy.

Charles T. Moore, Deputy General Counsel, & Sandra L. Nugent, for Tennessee Dept. of Revenue.

MEMORANDUM

RALPH H. KELLEY, Chief Judge.

The trustee in bankruptcy has objected to claim no. 79 filed by the Tennessee Department of Revenue as an administrative expense claim. The claim is for taxes incurred by the debtor while its case was a chapter 11 reorganization case, before it converted to a chapter 7 liquidation.

The trustee argues that the claim should be disallowed because it was filed late, more than thirty days after the court entered an order converting the case to chapter 7 and giving creditors thirty days to file proofs of claims.

The state argues that the order to creditors to file proofs of claims within thirty days did not apply to it. The argument begins with the assumption that the state's claim for taxes incurred during the chapter 11 case is an administrative expense claim. The state argues that the order did not apply to it because the order applied to creditors but the holder of an administrative expense claim is not a "creditor" as defined in the Bankruptcy Code. The state also argues that the order requires the filing of proofs of claims, but the holders of administrative expense claims file requests for payment, not proofs of claims.

The court finds the facts as follows.

In March, 1986, Transouth Truck Equipment (the debtor) filed a voluntary bankruptcy petition for reorganization under chapter 11 of the Bankruptcy Code. The reorganization attempt was short-lived. About four months after the debtor filed, the court appointed C. Kenneth Still chapter 11 trustee to carry out a sale of the business assets. The sale was carried out in July, 1986.

In September, 1986, the trustee filed a motion to convert the case to a liquidation case under chapter 7 of the Bankruptcy Code. The court set a hearing on the motion to convert. Since the Department of Revenue was scheduled as a creditor and had filed a proof of claim, it would have been served notice of the hearing on the motion to convert.

The court granted the motion by an order entered on October 24, 1986. The order provided that "creditors are allowed 30 days from the date of this order in which to file their proofs of claims, if they have not already done so." The state has not denied receiving this order.

The Department of Revenue did not file the claim in question until December 19, 1986, which was almost a month after the thirty days ended. The claim is for estimated franchise taxes either during the entire chapter 11 phase of the case or up to the proposed sale of the business; the summary sheets attached to the claim are unclear.

Discussion

The court will first consider the state's argument that the holder of an administrative expense claim always files a request for payment rather than a proof of claim.

Section 503(b) of the Bankruptcy Code describes the kinds of claims that are administrative expenses of the bankruptcy case — the actual, necessary costs of administering the bankruptcy case. It specifically includes most taxes incurred by a debtor while it is operating in a chapter 11 case before confirmation of a chapter 11 plan. This is the basis of the state's argument that its tax claim is an administrative expense. 11 U.S.C. § 503(b)(1).

Administrative expense status is important because administrative expense claims are first priority unsecured claims; they are paid ahead of all other unsecured claims. 11 U.S.C. § 507(a)(1).

The Bankruptcy Code provides that a creditor can prove its claim against the debtor in bankruptcy by filing a proof of claim. 11 U.S.C. §§ 501 & 502. However, the holder of a claim for administrative expenses may file a "request for payment". 11 U.S.C. § 503(a).

There are official forms for proofs of claims and procedural rules that govern their filing. Bankr.Rules 3001-3008 & Official Forms 19-21.

The bankruptcy statutes do not define or illustrate a request for payment. The legislative history of § 503 says that the bankruptcy rules will provide the procedure for making a request for payment. 3 L.King, Collier on Bankruptcy ¶ 503.01 (15th ed. 1988). But there is no general rule that specifically sets forth how an entity can file a request for payment of an administrative expense claim.

Rule 2016 requires the filing of an "application" by an entity who has rendered services to the bankruptcy estate. Bankr. Rule 2016; 11 U.S.C. §§ 326-331 & § 503(b)(3) & (4). Obviously, a chapter 11 debtor that is operating a business will incur debts in the ordinary course of business that are not for services rendered. For example, the debtor's tax debts are not debts for services rendered. Rule 2016 applies only to a particular kind of administrative expense debt — a debt for services rendered. Every entity with an administrative expense claim does not make a request for payment by filing an application under Rule 2016.

Rule 9014 provides a catch-all procedure for situations not exactly covered by other rules. In the absence of any other procedure, a request for relief can be made by filing a motion. Bankr.Rule 9014. This may be the appropriate procedure in some situations for an administrative expense claimant to make a request for payment.

In this case, however, Rule 1019 provides a different procedure.

When a chapter 11 case converts to chapter 7, the debtor-in-possession or the chapter 11 trustee is supposed to file a schedule of debts incurred during the chapter 11 case. Bankr.Rule 1019(6). The court is supposed to give notice to everyone scheduled to file a proof of claim. Bankr. Rule 1019(7). The rule does not say that the court should notify them to file proofs of claims or requests for payment of administrative expenses. The rule says that they are to be directed to file proofs of claims.

Moreover, the rule specifically includes the federal government, the state government, and any other government as an entity that must be notified to file a proof of claim. The drafters of Rule 1019(7) chose to require the various governments to file proofs of claims, even though most government tax claims will be entitled to administrative expense priority.

The practical reason for requiring proofs of claims should be obvious. When a chapter 11 case converts to chapter 7, there may be a multitude of ordinary business debts that the debtor incurred during the chapter 11 case. As to these debts, the conversion to chapter 7 is very much like the filing of a new chapter 7 case by a debtor who has not been in chapter 11. The main difference is that some of the ordinary business debts will be entitled to administrative expense priority. The drafters of Rule 1019 apparently concluded that it is easiest to require everyone with a claim that arose during a chapter 11 case, and which is not governed by Rule 2016, to file a proof of claim regardless of whether the claim might be an administrative expense. 12 Collier on Bankruptcy ¶ 122.12 (14th ed. 1987).

The court realizes that the proof of claim form asks for claims that arose prepetition. Official Form 19, ¶ 2. The court assumes, however, that anyone with a claim that arose during the chapter 11 case and who receives notice to file a proof of claim will realize that they are being asked to prove the claim that arose during the chapter 11 case; this should be obvious since the claimant will also receive notice that the case has converted from chapter 11 to chapter 7. Bankr.Rule 2002(f)(4).

Requiring an administrative expense claimant to file a proof of claim does not contradict the provision in § 503(a) that an administrative expense claimant can file a request for payment. Section 503(a) leaves it to the rules to define a request for payment. In this situation, Rule 1019 provides that a request for payment must be made by filing a proof of claim.

Using a proof of claim as a request for payment does not significantly change the statutory procedure or burden of proof for establishing an administrative expense claim.

Section 503(b) provides that "after notice and hearing" a claim can be allowed as an administrative expense. 11 U.S.C. § 503(b). Does this mean that a claim can be allowed as an administrative expense only if the court actually holds a hearing first?

For example, the court allows fees and expenses based on an application under Rule 2016 only after there has been a hearing. On the other hand, when a creditor files a proof of claim, the claim may be allowed without a hearing. The trustee in bankruptcy must object to the claim in order to have a hearing. 11 U.S.C. § 502.

Since the proof of claim form includes a space to assert priority, the administrative expense claimant who files a proof of claim under Rule 1019 can have its claim allowed as an administrative expense without a hearing if the trustee fails to object.

The court sees nothing wrong with this result. "After notice and a hearing" includes notice and an opportunity to object and have a hearing on the objection. 11 U.S.C. § 102(1).

Assuming that Rule 2016 requires a hearing on an application, it deals only with charges for services rendered; it does not mean that a hearing must be required on a request for payment that is not governed by Rule 2016.

If the claimant filed a motion for payment of the claim as an administrative expense, the court could follow the same procedure; it could allow the trustee time to object, and if he didn't, the motion could be granted without a hearing.

Allowing a claim as an administrative expense, unless there is an objection, is a more appropriate procedure in this situation than always requiring a hearing before allowing the claim. There may be numerous ordinary business debts, some of which are...

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