The Future of the Doctrine of Necessity and Critical Vendor Payments in Chapter 11 Cases

Abstract

This Article explores the history and justification for the doctrine of necessity in Chapter 11 cases. It discusses the doctrine's gradual narrowing, due to appellate courts' reluctance to permit payment of prepetition debts or recognize courts' authority to authorize such payments. The Article analyzes the effect of recent amendments to the Bankruptcy Code on the doctrine and confirms that there is uncertainty regarding the propriety of payment of certain prebankruptcy debts. The Article proposes that the Code be amended to clarify the extent to which the doctrine of necessity applies in Chapter 11 cases and asserts that courts should recognize different standards depending on the type of debt being repaid. Finally, this Article argues that courts should have discretion to authorize payments in extraordinary circumstances when they follow procedural safeguards.