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  • Indenture Trustee Failed to Persuade the Bankruptcy and District Courts that it Made a “Substantial Contribution” Justifying Recovery of its Fees and Expenses as an Administrative Expense Under Bankruptcy Code § 303(b)

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Indenture Trustee Failed to Persuade the Bankruptcy and District Courts that it Made a “Substantial Contribution” Justifying Recovery of its Fees and Expenses as an Administrative Expense Under Bankruptcy Code § 303(b)

July 23, 2007

In re Northwestern Corp., 2007 WL 968171 (D. Del. 4/2/07). On appeal, District Judge Farnam (who handled bankruptcy cases during the period that the court in Delaware did not refer all bankruptcy cases to the Bankruptcy Judges) held that the Bankruptcy Court did not abuse its discretion in finding that an indenture trustee was not entitled to recover all of the fees and expenses. Law Debenture Trust Company of New York appealed from Bankruptcy Judge Carey’s ruling that it did not meet the standard for payment of its fees and expenses pursuant to Bankruptcy Code § 503(b) which authorizes payment, as an administrative expense of the fees and expenses of an indenture trustee in making a “substantial contribution” to the case in this chapter 11 case. District Judge Farham found that Bankruptcy Judge Carey's ruling was not “clearly erroneous”, which was the applicable standard of review. The opinion includes citations to the familiar statements that activities undertaken to advance a party’s own interest are not compensable. Neither Judge accepted Law Debenture’s argument that it was entitled to compensation because it was acting as a fiduciary, since the courts did not consider that those efforts would necessarily benefit the estate. The case illustrates the risks of seeking compensation under Bankruptcy Code § 503(b) where payment is not otherwise provided for under a chapter 11 plan.



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