11 U.S.C. § 364 — Obtaining credit
submitted 48 years ago by Pub. L. 95-598 to r/title-11-BANKRUPTCY · 475 words · no verdicts yet
This law lets a bankruptcy trustee borrow money or run up debt to keep the debtor's business going. Ordinary borrowing needs no court approval, but bigger or secured borrowing needs notice and a hearing, with protections for existing lien holders. It also protects good-faith lenders if a court later reverses the approval.
(a) If the trustee is authorized to run the debtor's business under one of the listed chapters (721, 1108, 1183, 1184, 1203, 1204, or 1304), the trustee can get unsecured credit or take on unsecured debt* in the ordinary course of business, without court approval, unless the court says otherwise. This debt counts as an administrative expense under section 503(b)(1).
(b) For borrowing outside the ordinary course of business, the court can authorize the trustee to get unsecured credit or debt after notice and a hearing. This debt also counts as an administrative expense under section 503(b)(1).
(c) If the trustee cannot get unsecured credit as an ordinary administrative expense, the court, after notice and a hearing, can authorize borrowing on better terms: (1) with priority ahead of some or all other administrative expenses; (2) secured by a lien on estate property that has no existing lien; or (3) secured by a lien that ranks behind an existing lien on that property.
(d)(1) The court can go further and authorize borrowing secured by a lien equal to or senior to an existing lien on estate property, but only if: (A) the trustee genuinely cannot get credit any other way, and (B) the existing lien holder's interest is adequately protected. (2) In any hearing on this, the trustee must prove that the protection is adequate.
(e) If an appeals court reverses or changes an approval to borrow money, or a priority or lien granted under this section, that does not cancel debt already lent, or a priority or lien already granted, to a lender who acted in good faith, even if they knew about the appeal, unless the approval and the borrowing, or the granting of the priority or lien, were paused during the appeal.
(f) Ordinary securities laws, including section 5 of the Securities Act of 1933, the Trust Indenture Act of 1939, and state or local laws requiring registration or licensing of securities issuers, underwriters, brokers, or dealers, do not apply to a security sold or offered under this section, unless it is bought by an underwriter as defined in section 1145(b) of this title. This exemption covers only debt securities, not equity securities.
If the trustee is authorized to operate the business of the debtor* under section 721, 1108, 1183, 1184, 1203, 1204, or 1304 of this title, unless the court orders otherwise, the trustee may obtain unsecured credit and incur unsecured debt* in the ordinary course of business allowable under section 503(b)(1) of this title as an administrative expense.
The court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this section, allowable under section 503(b)(1) of this title as an administrative expense.
If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt—
with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title;
secured by a lien on property of the estate that is not otherwise subject to a lien; or
secured by a junior lien on property of the estate that is subject to a lien.
The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if—
the trustee is unable to obtain such credit otherwise; and
there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted.
In any hearing under this subsection, the trustee has the burden of proof on the issue of adequate protection.
The reversal or modification on appeal of an authorization under this section to obtain credit or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity* that extended such credit in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and the incurring of such debt, or the granting of such priority or lien, were stayed pending appeal.
Except with respect to an entity that is an underwriter as defined in section 1145(b) of this title, section 5 of the Securities Act of 1933, the Trust Indenture Act of 1939, and any State or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security does not apply to the offer or sale under this section of a security that is not an equity security*.
Source credit: (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2574; Pub. L. 99–554, title II, § 257(l), Oct. 27, 1986, 100 Stat. 3115; Pub. L. 103–394, title V, § 501(d)(9), Oct. 22, 1994, 108 Stat. 4144; Pub. L. 116–54, § 4(a)(7), Aug. 23, 2019, 133 Stat. 1086; Pub. L. 116–260, div. N, title III, § 320(a), (f)(2)(A)(i), Dec. 27, 2020, 134 Stat. 2015, 2016.)
- 1978Enacted · Pub. L. 95-598 · 92 Stat. 2574
- 1986Amended · Pub. L. 99-554 · 100 Stat. 3115
- 1994Amended · Pub. L. 103-394 · 108 Stat. 4144
- 2019Amended · Pub. L. 116-54 · 133 Stat. 1086
- 2020Amended · Pub. L. 116-260 · 134 Stat. 2015, 2016
A history note hasn’t been published yet. The record shows enactment by Pub. L. 95-598 on 1978-11-06.
all 0 arguments · sorted by: best
no arguments yet — make the first case