MATTER OF KMART CORPORATION
359 F.3d 866 (2004)
NATURE OF THE CASE: Kmart (P) appealed the reversal of an order for payment of critical
vendors.
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.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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