Bankruptcy Code Sections 503(b)(9) and 546(c): A Bitter Pill for Healthcare Debtors Is Pain Relief for Their Vendors

It’s a common scenario, especially in these tough economic times: a vendor that sells large volumes of supplies to a healthcare facility, with which it has done business for years, learns that the facility has suddenly (and perhaps unexpectedly) filed for bankruptcy protection. Thousands of dollars in invoices to the facility remain unpaid. And while the vendor may be able to require cash on delivery for any further supplies that it sells to the facility during the reorganization process, the facility is in possession of the supplies that were previously delivered, the “automatic stay” triggered by the bankruptcy filing prevents the vendor from seeking any payment for those goods, and the vendor may be left holding an unsecured pre-bankruptcy claim against the facility that is likely to be paid at only “pennies on the dollar.” But all is not as it once was for the vendor or the newly-bankrupt healthcare debtor, thanks to two relatively recent additions to the Bankruptcy Code: section 503(b)(9) and amended section 546(c).

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