Opinion
No. 75 B 2192
January 15, 1980
Former Bankruptcy Act — Priorities — Cost of Administration — Attorney Fees — Superseded Chapter XI Proceeding
The administrative costs of a bankruptcy proceeding which has superseded a Chapter XI proceeding take priority over the administrative costs of the Chapter XI proceeding. Therefore, an attorney's fees for services performed during the pendency of an unsuccessful Chapter XI proceeding wherein the debtor is ultimately adjudicated a bankrupt are entitled to a priority as an expense of administration to be satisfied pro rata with other such costs, only after the administrative costs incurred in the bankruptcy proceeding are paid in full. See Sec. 64a(1) at ¶ 2625 and Sec 507(a)(1) at ¶ 9027.
[Digest of Opinion]
The creditor was retained by the bankrupt to bring suit in state court. After the creditor initiated prosecution of the suit, the bankrupt filed a petition for an arrangement pursuant to Chapter XI of the Bankruptcy Act. During the pendency of these proceedings, the bankruptcy judge authorized the creditor to continue the prosecution of this suit provided that the creditor's compensation for services as the attorney for the bankrupt be fixed by the court. The suit was settled by order of the bankruptcy court. Subsequently, because the arrangement under Chapter XI was unsuccessful, the debtor was adjudicated a bankrupt. In the Order of Final Distribution, the creditor was awarded a dividend on his total claim for attorney fees.By performing services for the bankrupt during the pendency of its Chapter XI proceeding, the creditor was entitled to compensation as part of the expenses of administration. Because the debtor was later adjudicated bankrupt, the costs of administration of the bankruptcy proceeding take priority over the costs of administration in the superseded Chapter XI proceeding pursuant to Section 64a(1) of the Bankruptcy Act. In this case, since the fund for distribution was insufficient to satisfy in full the administrative costs and expenses of both proceedings, the costs incurred in the bankruptcy proceeding were paid in full and the remaining costs including must be satisfied pro rata from the remaining assets.