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Critical Vendors: An Exception to a Rule of Chapter 11

Published February 5, 2014 by Sasser Law Firm

One of the Ten Commandments of being a chapter 11 debtor is this: Thou Shalt Not Pay Any Pre-Petition Creditor.

But of course the moment the command leaves our lips, several exceptions emerge. One concerns the ongoing payments of certain suppliers or vendors that are necessary for the continued operations of the company and who will not wait patiently until the confirmation of the plan to collect their money. If you are a sushi restaurant and there is only one supplier of sushi in town, it is important that you keep him happy.

Fortunately, the bankruptcy code recognizes this common reality and provides a method of gaining approving to pay these vendors. But the general rule remains that a debtor must obtain court permission before paying a debt that arose prior to the filing of the bankruptcy case, including employees, suppliers, and vendors.

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