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Bankruptcy Keyed to Bussel, 12th Ed.
In re Kmart Corp.
Citation:
359 F.3d 866 (2004)Facts
On the first day of its bankruptcy filing, Kmart sought permission to pay immediately and in full the pre-petition claims of all “critical vendors.” The bankruptcy court granted this request without notifying disfavored creditors, without receiving substantive evidence, and without making factual findings that disfavored creditors would benefit from the arrangement. Kmart subsequently paid approximately $300 million to 2,330 suppliers it deemed “critical,” while approximately 2,000 other vendors and 43,000 unsecured creditors ultimately received only about 10 cents on the dollar, mostly in stock of the reorganized company. The critical vendors order was premised on the theory that some suppliers might refuse to do business with Kmart if their pre-petition claims weren’t paid, potentially causing the business to fail. Fleming Companies, which received the largest critical vendor payment, had a long-term contract with Kmart and was legally obligated to continue deliveries.
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