Problems in the Code
The "Substantial Contribution" Test for Indenture Trustees
Reprinted with permission from the ABI Journal, Vol. XXXVIII, No. 2, February 2019.
Is It an Unfair Requirement?
Date: February 2019 | ABI Journal
Indentures often provide that an indenture trustee’s expenses incurred after an event of default constitute administration expenses under applicable bankruptcy law. However, § 503 (b) (5) requires indenture trustees to show that they have made a “substantial contribution” in a case in order to receive their fees and costs. This means that a trustee is held to a higher standard than the “actual, necessary” standard that other administrative expense claimants must satisfy pursuant to § 503 (b) (1) (A). Even so, some courts permit trustees to be paid from estate funds under the terms of a chapter 11 plan without satisfying the substantial-contribution standard, although the case law is not uniform.
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