Articles

Problems in the Code

The "Substantial Contribution" Test for Indenture Trustees

Date: February 2019 | ABI Journal
Reprinted with permission from the ABI Journal, Vol. XXXVIII, No. 2, February 2019.

Is It an Unfair Requirement?
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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