Matter Of Kmart Corporation

359 F.3d 866 (2004)

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Nature of the Case

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Facts

P declared bankruptcy and sought permission to pay immediately, and in full, the prepetition claims of all 'critical vendors.' The Court entered the order just as P proposed it. There was no notification of any disfavored creditors. The court received no information as to why these vendors were critical, and the court made no findings of fact that the disfavored creditors would gain or come out even. The order did cite §105(a). P paid in full the pre-petition debts to 2,330 suppliers ($300 million) from debtor in possession financing that the court authorized, granting the lenders super-priority in post-petition assets and revenues. The approximately 2,000 noncritical vendors were not paid. They and along with 43,000 additional unsecured creditors received about 10 cents on the dollar, mostly in stock of the reorganized P. Capital Factors, Inc. (D) appealed the critical-vendors order immediately after its entry. The District Court reversed the order in that neither §105(a) nor a 'doctrine of necessity' supports the orders. P appealed.