In In re Molycorp, Case No. 15-11357 (CSS) (Bankr. D. Del. Jan. 5), U.S. Bankruptcy Judge Christopher S. Sontchi of the District of Delaware held that absent specific language in a debtor-in-possession (DIP) financing order, a carve-out for a fixed dollar amount for professional fees does not serve as a cap on the amount of fees to which a professional may be entitled once a Chapter 11 plan is confirmed. Unless the holder of a particular claim has agreed to a different treatment, a fundamental statutory requirement of the Bankruptcy Code is that allowed professionals’ fees are administrative expenses that need to be paid in full under any confirmed plan.
Molycorp and certain of its subsidiaries (debtors) filed voluntary petitions under Chapter 11 of the Bankruptcy Code. Ultimately, the debtors entered into a DIP financing facility with Oaktree Capital Management. The court entered a DIP Financing Order, which provided that “up to $250,000 in the aggregate proceeds of the DIP loans, the DIP collateral, the prepetition collateral, and the carve-out may be used to pay fees and expenses of the professionals retained by the [unsecured creditors'] committee that are incurred in connection with investigating (but not prosecuting any challenge to)” potential claims. The committee engaged counsel and launched an investigation into potential claims that could be asserted by the debtors’ estates against Oaktree and the debtors’ directors and officers, and sought authorization to bring an adversary proceeding on behalf of the debtors’ estates against them. Following extensive mediation before a bankruptcy judge from another district, the debtors entered into a global settlement among the parties to the litigation, including Oaktree and the committee. The settlement lead to a consensual plan of reorganization for certain of the debtors, which was confirmed by the court.
