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In a recent decision by the U.S. Court of Appeals for the Second Circuit in In re Ames Department Stores Inc.,1 the court considered whether a claimant is entitled to payment of an administrative expense claim that it purchased from another creditor before a preference action against the selling creditor was resolved. Relying on the language and statutory context of Bankruptcy Code §502(d) and other relevant statutory provisions, as well as the policy interests embedded in the Bankruptcy Code’s claims administration scheme, the court reversed the lower courts and concluded that debtors cannot utilize §502(d) to temporarily disallow an administrative expense claim during the pendency of an avoidance action against the original claimant.

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