## Facts

- Ockerlund Construction Company operated as a Chapter 11 debtor-in-possession.
- MB Financial Bank seized funds in the debtor’s bank account due to delinquent loan repayments, while the bank and debtor negotiated over restoration of those funds.
- During the negotiations, the debtor’s president, Craig Ockerlund, advanced unsecured postpetition funds to the debtor to (i) cover costs to complete a school construction project and (ii) pay postpetition employee health and dental insurance premiums.
- The debtor sought court authorization to repay the president, arguing the advance should be treated as postpetition credit entitled to administrative priority under 11 U.S.C. § 364, or as an administrative expense under 11 U.S.C. § 503(b).
- MB Financial Bank supported the motion; Midwesco Services, Ltd. and Atlantic Mutual Insurance Company opposed it.
- The matter proceeded as a contested matter in the bankruptcy court.

## Issues

1. Whether the president’s postpetition “emergency advance” was unsecured credit incurred in the ordinary course of business under 11 U.S.C. § 364(a), permitting repayment without prior court authorization.
2. If not ordinary course, whether the court could retroactively approve the unauthorized postpetition financing under 11 U.S.C. § 364(b) and/or 11 U.S.C. § 105(a) to confer administrative priority.
3. If administrative priority was unavailable, whether the president nonetheless held an allowable general unsecured claim against the estate.

## Decision

- The court held the advance was not incurred in the ordinary course of business under § 364(a).
- The court denied retroactive approval under § 364(b) and declined to use § 105(a) to bypass § 364’s authorization requirements.
- The court disallowed administrative-priority treatment for the president’s claim.
- The court concluded the president had no allowable general unsecured claim for distribution purposes based on the Code’s “claim” and “creditor” definitions as applied to unauthorized postpetition lending.

## Legal Principles

- Under 11 U.S.C. § 364(a), a debtor-in-possession may obtain unsecured credit without prior court approval only if the credit is incurred in the ordinary course of business; ordinary course is assessed in part by the “vertical” (creditor expectation) test.
- Under 11 U.S.C. § 364(b), unsecured credit outside the ordinary course requires prior court authorization after notice and an opportunity for hearing; administrative priority depends on compliance with that process.
- Equitable authority under 11 U.S.C. § 105(a) cannot override specific Bankruptcy Code requirements, including § 364’s approval framework.
- Retroactive approval of unauthorized postpetition financing, to the extent recognized, is limited to truly extraordinary and unusual circumstances; generalized “emergency” assertions are insufficient.
- The fact that loan proceeds were used to pay expenses that would have been allowable administrative expenses does not convert an unauthorized postpetition lender into an administrative claimant absent proper § 364 authorization.
- A postpetition obligation may fall within the broad definition of “claim,” but a lender with a non-administrative postpetition claim may fail to qualify as a “creditor” entitled to file an allowed claim and participate in distributions.

## Conclusion

The court refused to validate an insider’s unauthorized postpetition “emergency” loan as ordinary-course credit or through retroactive approval, disallowed administrative priority, and held the insider was not entitled to share in estate distributions on a general unsecured theory.


In re Ockerlund Constr. Co., 308 B.R. 325 (Bankr. N.D. Ill. 2004)