Opinion
No. 74-419 WK
June 20, 1979
Priorities — Administration Costs — Certificates of Indebtedness
The claim of a creditor to priority over all administration expenses must be honored if the loan was made pursuant to receiver's Certificates of Indebtedness issued under Section 344 giving the creditor a lien superior to the rights and interests of all creditors.
The creditor advanced monies to the receiver following the receiver's filing of an Application for Leave to Issue Receiver's Certificates and the court's issuing of an Order making such certificates subordinate only to the secured claim of the mortgagee. When the mortgagee foreclosed and gained possession of the premises, the creditor filed an Application for Payment of Balance of Bankrupt Estate, claiming a priority over all other expenses of administration. The receiver opposed the claim.
While Section 64a(1) of the Bankruptcy Act defines costs and expenses of administration and gives these first priority among the payments to be made from the debtor's assets, it does not create any priority among the various administration expenses individually when, as here, the assets are insufficient to pay these costs in full. The claims are treated with equality unless some members of the class have agreed to subordinate their claims or acquiesced in the receiver's preferential payment of another creditor, with full knowledge of the facts. In a Chapter XI case, the court is authorized, under Section 344, to modify the rights of unsecured creditors and priority claims by the issuance of Certificates of Indebtedness "upon such terms and conditions and with such security and priority in payment over existing obligations as in the particular case may be equitable." In the instant case, the receiver was aware of the Application for the Certificates, and in accordance with the authority of the court's Order, the receiver issued the Certificates in return for the funds used to maintain the estate. The court determined that it would be inequitable and unfair for the receiver to raise objections to the priority position granted to the creditor due to the affirmative actions taken by him. Further, the creditor's reliance upon the receiver's representations would be sufficient to permit her to prevail aside from Section 344 in this instance where otherwise the receiver personally would receiver a totally unwarranted benefit. Thus, the creditor's claim to priority of payment over other expenses of administration was proper. See Sec. 64a(1) [§ 507(a)(1)] at ¶ 9027 and Sec. 344 at ¶ 3355.