In re Cliftondale Oaks, LLC, Case No. 04-95161, 2006 Bankr. LEXIS 2274 (Bankr. N.D. Ga. June 2, 2006) (Drake)

Debtor was in the business of developing residential real estate, and sought a post-petition loan to finance the development of a residential subdivision.  One of the insiders of the debtor, apparently without the approval of the debtor’s managing member, sought financing from two lenders.  As part of his effort, the insider paid loan fees of $20,000 and $1,500 to the respective prospective lenders.  Meanwhile, the debtor was pursuing financing options on its own.

The court ultimately denied the debtor’s proposed financing and the real property was sold.  The insider then filed an administrative claim for the loan fees he paid on behalf of the debtor.  The debtor objected to the claim. 

The court sustained the objection.  The loan fees were apparently not approved by the debtor, and did not arise from a transaction between the insider and the debtor. The fees also did not provide any benefit to the debtor.  Moreover, since the insider apparently intended that the payment of the loan fees were in the nature of a post-petition loan to the debtor, it was not in the ordinary court of the debtor’s business, and therefore, had to be approved by the court.  Without such approval, the insider was not entitled to administrative expense priority.  For these reasons, the administrative claim was not appropriate pursuant to Section 503(b).