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Codified Statutes
- U.S. Code
- TITLE 11 — BANKRUPTCY
- CHAPTER 5 — CREDITORS, THE DEBTOR, AND THE ESTATE(§§ 501 to 562)
- SUBCHAPTER I — CREDITORS AND CLAIMS(§§ 501 to 511)
11 U.S.C. § 503. Allowance of administrative expenses
(a)
An entity may timely file a
request for payment of an administrative expense, or may tardily
file such request if permitted by the court for cause.
(b)
After notice and a hearing,
there shall be allowed administrative expenses, other than claims
allowed under section 502(f) of this title, including-
(1)
(A)
the actual, necessary
costs and expenses of preserving the estate
including-
(i)
wages, salaries,
and commissions for services rendered after the
commencement of the case; and
(ii)
wages and benefits
awarded pursuant to a judicial proceeding or a
proceeding of the National Labor Relations Board as back
pay attributable to any period of time occurring after
commencement of the case under this title, as a result
of a violation of Federal or State law by the debtor,
without regard to the time of the occurrence of unlawful
conduct on which such award is based or to whether any
services were rendered, if the court determines that
payment of wages and benefits by reason of the operation
of this clause will not substantially increase the
probability of layoff or termination of current
employees, or of nonpayment of domestic support
obligations, during the case under this title;
(B)
any tax-
(i)
incurred by the
estate, whether secured or unsecured, including property
taxes for which liability is in rem, in personam, or
both, except a tax of a kind specified in section
507(a)(8) of this title; or
(ii)
attributable to an
excessive allowance of a tentative carryback adjustment
that the estate received, whether the taxable year to
which such adjustment relates ended before or after the
commencement of the case;
(C)
any fine, penalty, or
reduction in credit relating to a tax of a kind specified in
subparagraph (B) of this paragraph; and
(D)
notwithstanding the
requirements of subsection (a), a governmental unit shall
not be required to file a request for the payment of an
expense described in subparagraph (B) or (C), as a condition
of its being an allowed administrative expense;
(3)
the actual, necessary
expenses, other than compensation and reimbursement specified in
paragraph (4) of this subsection, incurred by-
(B)
a creditor that
recovers, after the court's approval, for the benefit of the
estate any property transferred or concealed by the
debtor;
(C)
a creditor in
connection with the prosecution of a criminal offense
relating to the case or to the business or property of the
debtor;
(D)
a creditor, an
indenture trustee, an equity security holder, or a committee
representing creditors or equity security holders other than
a committee appointed under section 1102 of this title, in making a
substantial contribution in a case under chapter 9 or 11 of
this title;
(4)
reasonable compensation
for professional services rendered by an attorney or an
accountant of an entity whose expense is allowable under
subparagraph (A), (B), (C), (D), or (E) of paragraph (3) of this
subsection, based on the time, the nature, the extent, and the
value of such services, and the cost of comparable services
other than in a case under this title, and reimbursement for
actual, necessary expenses incurred by such attorney or
accountant;
(5)
reasonable compensation
for services rendered by an indenture trustee in making a
substantial contribution in a case under chapter 9 or 11 of this
title, based on the time, the nature, the extent, and the value
of such services, and the cost of comparable services other than
in a case under this title;
(6)
the fees and mileage
payable under chapter 119 of title 28;
(7)
with respect to a
nonresidential real property lease previously assumed under
section 365, and
subsequently rejected, a sum equal to all monetary obligations
due, excluding those arising from or relating to a failure to
operate or a penalty provision, for the period of 2 years
following the later of the rejection date or the date of actual
turnover of the premises, without reduction or setoff for any
reason whatsoever except for sums actually received or to be
received from an entity other than the debtor, and the claim for
remaining sums due for the balance of the term of the lease
shall be a claim under section 502(b)(6);
(8)
the actual, necessary
costs and expenses of closing a health care business incurred by
a trustee or by a Federal agency (as defined in section 551(1) of title 5) or a
department or agency of a State or political subdivision
thereof, including any cost or expense incurred-
(B)
in connection with
transferring patients from the health care business that is
in the process of being closed to another health care
business;
(9)
the value of any goods
received by the debtor within 20 days before the date of
commencement of a case under this title in which the goods have
been sold to the debtor in the ordinary course of such debtor's
business; and
(10)
any debt incurred under section 364(g)(1) of this title.
(c)
Notwithstanding subsection
(b), there shall neither be allowed, nor paid-
(1)
a transfer made to, or an
obligation incurred for the benefit of, an insider of the debtor
for the purpose of inducing such person to remain with the
debtor's business, absent a finding by the court based on
evidence in the record that-
(A)
the transfer or
obligation is essential to retention of the person because
the individual has a bona fide job offer from another
business at the same or greater rate of compensation;
(B)
the services provided
by the person are essential to the survival of the business;
and
(C)
either-
(i)
the amount of the
transfer made to, or obligation incurred for the benefit
of, the person is not greater than an amount equal to 10
times the amount of the mean transfer or obligation of a
similar kind given to nonmanagement employees for any
purpose during the calendar year in which the transfer
is made or the obligation is incurred; or
(ii)
if no such similar
transfers were made to, or obligations were incurred for
the benefit of, such nonmanagement employees during such
calendar year, the amount of the transfer or obligation
is not greater than an amount equal to 25 percent of the
amount of any similar transfer or obligation made to or
incurred for the benefit of such insider for any purpose
during the calendar year before the year in which such
transfer is made or obligation is incurred;
(2)
a severance payment to an
insider of the debtor, unless-
(A)
the payment is part of
a program that is generally applicable to all full-time
employees; and
(B)
the amount of the
payment is not greater than 10 times the amount of the mean
severance pay given to nonmanagement employees during the
calendar year in which the payment is made; or
(3)
other transfers or
obligations that are outside the ordinary course of business and
not justified by the facts and circumstances of the case,
including transfers made to, or obligations incurred for the
benefit of, officers, managers, or consultants hired after the
date of the filing of the petition.
Pub. L.
95-598, Nov. 6, 1978, 92 Stat. 2581; Pub. L.
98-353, title III, Sec. 446, July 10, 1984,
98 Stat.
374; Pub. L.
99-554, title II, Sec. 283(g), Oct. 27, 1986,
100 Stat.
3117; Pub. L.
103-394, title I, Sec. 110, title II, Sec. 213(c),
title III, Sec. 304(h)(2), Oct. 22, 1994, 108 Stat. 4113,
4126,
4134; Pub. L.
109-8, title III, Secs. 329, 331, title IV, Sec.
445, title VII, Sec. 712(b), (c), title XI, Sec. 1103, title
XII, Secs. 1208, 1227(b), Apr. 20, 2005, 119 Stat. 101, 102, 117, 128, 190, 194, 200. Pub. L.
116-260, title III, Secs. 320(b), 320(f)(2)(A)(ii), Dec. 27, 2020,
134 Stat.
2015,
2016.
HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS
Section 503(a) of the House amendment
represents a compromise between similar provisions in the House
bill and the Senate amendment by leaving to the Rules of
Bankruptcy Procedure the determination of the location at which
a request for payment of an administrative expense may be filed.
The preamble to section 503(b) of the House bill makes a similar
change with respect to the allowance of administrative
expenses.
Section 503(b)(1) adopts the approach taken in
the House bill as modified by some provisions contained in the
Senate amendment. The preamble to section 503(b) makes clear
that none of the paragraphs of section 503(b) apply to claims or
expenses of the kind specified in section 502(f) that arise in
the ordinary course of the debtor's business or financial
affairs and that arise during the gap between the commencement
of an involuntary case and the appointment of a trustee or the
order for relief, whichever first occurs. The remainder of
section 503(b) represents a compromise between H.R. 8200 as
passed by the House and the Senate amendments. Section
503(b)(3)(E) codifies present law in cases such as Randolph v.
Scruggs, 190 U.S. 533, which accords administrative expense
status to services rendered by a prepetition custodian or other
party to the extent such services actually benefit the estate.
Section 503(b)(4) of the House amendment conforms to the
provision contained in H.R. 8200 as passed by the House and
deletes language contained in the Senate amendment providing a
different standard of compensation under section 330 of that
amendment.
SENATE REPORT NO. 95-989
Subsection (a) of this section permits
administrative expense claimants to file with the court a
request for payment of an administrative expense. The Rules of
Bankruptcy Procedure will specify the time, the form, and the
method of such a filing.
Subsection (b) specifies the kinds of
administrative expenses that are allowable in a case under the
bankruptcy code. The subsection is derived mainly from section
64a(1) of the Bankruptcy Act [section 104(a)(1) of
former title 11], with some changes. The
actual, necessary costs and expenses of preserving the estate,
including wages, salaries, or commissions for services rendered
after the order for relief, and any taxes on, measured by, or
withheld from such wages, salaries, or commissions, are
allowable as administrative expenses.
In general, administrative expenses include
taxes which the trustee incurs in administering the debtor's
estate, including taxes on capital gains from sales of property
by the trustee and taxes on income earned by the estate during
the case. Interest on tax liabilities and certain tax penalties
incurred by the trustee are also included in this first
priority.
Taxes which the Internal Revenue Service may
find due after giving the trustee a so-called "quickie" tax refund and later doing
an audit of the refund are also payable as administrative
expenses. The tax code [title 26]
permits the trustee of an estate which suffers a net operating
loss to carry back the loss against an earlier profit year of
the estate or of the debtor and to obtain a tentative refund for
the earlier year, subject, however, to a later full audit of the
loss which led to the refund. The bill, in effect, requires the
Internal Revenue Service to issue a tentative refund to the
trustee (whether the refund was applied for by the debtor or by
the trustee), but if the refund later proves to have been
erroneous in amount, the Service can request that the tax
attributable to the erroneous refund be payable by the estate as
an administrative expense.
Postpetition payments to an individual debtor
for services rendered to the estate are administrative expenses,
and are not property of the estate when received by the debtor.
This situation would most likely arise when the individual was a
sole proprietor and was employed by the estate to run the
business after the commencement of the case. An individual
debtor in possession would be so employed, for example. See
Local Loan v. Hunt, 292 U.S. 234, 243 (1943).
Compensation and reimbursement awarded officers
of the estate under section 330 are allowable as administrative
expenses. Actual, necessary expenses, other than compensation of
a professional person, incurred by a creditor that files an
involuntary petition, by a creditor that recovers property for
the benefit of the estate, by a creditor that acts in connection
with the prosecution of a criminal offense relating to the case,
by a creditor, indenture, trustee, equity security holder, or
committee of creditors or equity security holders (other than
official committees) that makes a substantial contribution to a
reorganization or municipal debt adjustment case, or by a
superseded custodian, are all allowable administrative expenses.
The phrase "substantial contribution in the
case" is derived from Bankruptcy Act Sec. 242 and 243
[sections 642 and 643 of former title
11]. It does not require a contribution that
leads to confirmation of a plan, for in many cases, it will be a
substantial contribution if the person involved uncovers facts
that would lead to a denial of confirmation, such as fraud in
connection with the case.
Paragraph (4) permits reasonable compensation
for professional services rendered by an attorney or an
accountant of an equity whose expense is compensable under the
previous paragraph. Paragraph (5) permits reasonable
compensation for an indenture trustee in making a substantial
contribution in a reorganization or municipal debt adjustment
case. Finally, paragraph (6) permits witness fees and mileage as
prescribed under chapter 119 [Sec. 2041 et
seq.] of title 28.
AMENDMENTS
2020-Pub. L. 116-260 Sec. 320(b)(1), amended
Subpar. (b)(8)(B) by removing "and" at the end.
Pub. L. 116-260 Sec. 320(b)(2), amended
Par. (b)(9) by replacing "." with "; and" at the end.
Pub. L. 116-260 Sec. 320(b)(3), added
paragraph (10) to Subsec. (b).
2005-Subsec. (b)(1)(A). Pub. L. 109-8, Sec. 329,
amended subpar. (A) generally. Prior to amendment subpar. (A)
read as follows: "the actual,
necessary costs and expenses of preserving the estate,
including wages, salaries, or commissions for services
rendered after the commencement of the case;".
Subsec. (b)(1)(B)(i). Pub. L. 109-8, Sec.
712(b), inserted "whether secured
or unsecured, including property taxes for which liability
is in rem, in personam, or both," before "except".
Subsec. (b)(1)(D). Pub. L. 109-8, Sec.
712(c), added subpar. (D).
Subsec. (b)(4). Pub. L. 109-8, Sec. 1208,
inserted "subparagraph (A),
(B), (C), (D), or (E) of" before "paragraph (3)".
Subsec. (b)(7). Pub. L. 109-8, Sec. 445,
added par. (7).
Subsec. (b)(8). Pub. L. 109-8, Sec. 1103,
added par. (8).
Subsec. (b)(9). Pub. L. 109-8, Sec.
1227(b), added par. (9).
Subsec. (c). Pub. L. 109-8, Sec. 331,
added subsec. (c).
1994-Subsec. (a). Pub. L. 103-394, Sec.
213(c), inserted "timely"
after "may" and ", or may tardily file such request if
permitted by the court for cause" before period at
end.
Subsec. (b)(1)(B)(i). Pub. L. 103-394, Sec.
304(h)(2), substituted "507(a)(8)"
for "507(a)(7)".
Subsec. (b)(3)(F). Pub. L. 103-394, Sec.
110, added subpar. (F).
1986-Subsec. (b)(1)(B)(i). Pub. L. 99-554, Sec.
283(g)(1), substituted "507(a)(7)"
for "507(a)(6)".
Subsec. (b)(5). Pub. L. 99-554, Sec.
283(g)(2), inserted "and" after
"title;".
Subsec. (b)(6). Pub. L. 99-554, Sec.
283(g)(3), substituted a period for "; and".
1984-Subsec. (b). Pub. L. 98-353, Sec.
446(1), struck out the comma after "be allowed" in provisions preceding
par. (1).
Subsec. (b)(1)(C). Pub. L. 98-353, Sec.
446(2), struck out the comma after "credit".
Subsec. (b)(2). Pub. L. 98-353, Sec.
446(3), inserted "(a)" after
"330".
Subsec. (b)(3). Pub. L. 98-353, Sec.
446(4), inserted a comma after "paragraph (4) of
this subsection".
Subsec. (b)(3)(C). Pub. L. 98-353, Sec.
446(5), struck out the comma after "case".
Subsec. (b)(5). Pub. L. 98-353, Sec.
446(6), struck out "and" after
"title;".
Subsec. (b)(6). Pub. L. 98-353, Sec.
446(7), substituted "; and" for
period at end.
EFFECTIVE DATE OF 2005 AMENDMENT
Amendments by Pub. L. 109-8 effective 180 days after Apr. 20,
2005, but inapplicable with respect to cases commenced under
this title before such date, except as otherwise provided, see
section 1501 of Pub. L.
109-8, set out as a note under section 101 of this title.
EFFECTIVE DATE OF 1994 AMENDMENT
Amendment by Pub. L. 103-394 effective Oct. 22,
1994, and not applicable with respect to cases commenced under
this title before Oct. 22, 1994, see section 702 of Pub. L. 103-394, set
out as a note under section 101 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,
1986, see section 302(a) of Pub. L. 99-554, set out as a note under section
581 of Title 28,
Judiciary and Judicial Procedure.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-353 effective with respect to cases
filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out
as a note under section 101 of this title.