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.
Statutory Framework
Section 502(d) of the Bankruptcy Code defines the circumstances under which a claim filed in a bankruptcy proceeding may be disallowed. It provides for the disallowance of “any claim” of a party holding property recoverable by the estate pursuant to Bankruptcy Code §§542 or 543 unless the party returns the property at issue or of a “transferee” of an avoidable transfer unless the transferee repays the transfer to the bankruptcy estate.2 Specifically, “transfers” subject to §502(d) include statutory liens avoidable under §545, preferences avoidable under §547, fraudulent transfers avoidable under §548, and certain postpetition transactions avoidable under §549.
