Retail Bankruptcy, Redux: Before, During and After COVID
There is a natural tension in every retail bankruptcy case between lenders and debtors on
the one hand seeking to minimize administrative expenses, and their landlords on the other hand,
insisting on payment of all post-petition rent. This tension plays out very early in most retail cases
when the debtors and their lenders, as part of a debtor in possession financing or consensual cash
collateral, seek a waiver the trustee’s right under section 506(c) of the Bankruptcy Code to charge
the lender’s collateral for the administrative costs of preserving or disposing of such property.
Before granting a so-called 506(c) waiver, most courts will require evidence, typically supported
by a budget, that the funds being advanced by the lender, together with the consented use of cash
collateral, will be sufficient to pay the reasonably foreseeable administrative expenses that will be
incurred by the debtor(s) during the pendency of the chapter 11 case(s). In retail cases, a category
of reasonably foreseeable administrative expenses that must be paid is post-petition rent.