Adequate Protection and Administrative Expense: Toward a Uniform System for Awarding Superpriorities

Part I of this Note reviews the legislative history of relevant Code sections and the Code language that pertain to the granting of adequate protection. Section 361 of the Code provides for three types of adequate protection. Sections 362, 363, and 364 set out instances when actions by the trustee that result in a decrease in the value of a secured party’s interest require the provision of adequate protection. Finally, sections 503 and 507 designate circumstances when prepetition secured creditors are eligible to receive administrative expenses. Section 507(b) authorizes allowance of an administrative expense claim when the adequate protection provided to a secured creditor fails.

Part II of this Note analyzes the conditions a creditor must satisfy to receive adequate protection. This Part argues that a creditor’s request to the court for adequate protection should be enough to invoke the right to administrative expense priority and suggests a Code revision to promote such an outcome. Part III addresses the issue, currently left unresolved by the Code and the Bankruptcy Rules, of whether adequate protection must be requested from and approved by the court. This Note concludes by proposing an effective system of notice and routine court approval that would address the major policy concerns of private agreements and could be provided with only minor revisions of the Bankruptcy Rules.