Case Summary:
Debtor was a kombucha producer who filed for bankruptcy under Chapter 11. Debtor concluded it could not make a decision regarding nonresidential real property lease assumption or rejection by the statutory deadline under 11 U.S.C § 365(d0(4)(A)(i). Debtor requested an extension of the deadline to permit Debtor adequate time to complete selling its assets. Debtor argued that if forced to assume within the statutory time, there may be unnecessary burden on the estate in the form of administrative expenses if it was later determined lease assumption is not required. Similarly, Debtor argued that premature rejection of the lease would leave the Debtor without the ability to operate its business and cripple the Debtor’s ability to maximize recovery efforts for the benefit of creditors. Plaintiff, Debtor’s landlord, opposed this request. Plaintiff’s attorneys then filed an Application for Allowance of Administrative Compensation. The Objectors to Application (which included the Debtor and Debtor’s primary secured creditor) argued that under 11 U.S.C. § 502(b)(6), a landlord’s claim for damages is limited to the amounts resulting from termination of a lease. Objectors to the Application also asserted that the requested sums do not qualify as administrative expense claims under § 503(b)(1) because the amounts were not actual or necessary costs and expenses of preserving the estate. The Court allowed the administrative expense claim of Debtor’s landlord. Based on the position taken by the Debtor, failing to extend the deadline to assume or reject the lease would have necessary implications for the sale process, could have impaired continued operation of the business, and would have impaired the ability to maximize the estate. Thus, the Court held that the work related to review of the lease and the motion for extension and its possible termination all align with the goals of preserving the estate by maximizing value for creditors, incentivizing creditors to do business with the Debtor, and preserving value.

Statute/Rule References:
11 U.S.C. § 502 -- Allowance of claims or interests
11 U.S.C. § 503 -- Administrative expenses

Key Terms:
Administrative Expenses