Wisconsin Judge Slashes Quarterly Fees to the U.S. Trustee Program

To ensure that the U.S. Trustee program pays for itself without contributions from the federal budget, Congress hiked the quarterly fees beginning with the government’s 2018 fiscal year by raising the amount paid by chapter 11 debtors with more than $1 million in quarterly disbursements.

Under 28 U.S.C. § 1930(a)(6)(B), the fee payable by companies with more than $1 million in quarterly disbursements is now the lesser of 1% “of such disbursements” or $250,000. The statute does not define “disbursements.”

For an outfit in Wisconsin named Cranberry Growers Cooperative, the quarterly fee under the old schedule contained in 28 U.S.C. § 1930(a)(6)(A) would have been $13,000. Under the new schedule, the U.S. Trustee contended that the fee should be almost $102,000.

Since the debtor was proposing a plan earmarking only $200,000 for unsecured creditors, the increase prompted the cooperative to scrutinize the U.S. Trustee’s method for calculating the quarterly fee.

The debtor was operating with financing from a revolving credit and a roll-up of prepetition revolver debt. The effect of the roll-up was to convert prepetition revolver debt into post-petition revolver debt.

In other words, all collections on sales and accounts receivable went into a collection account swept by the bank each day to pay down the revolving credit. After deducting its fees and interest, the bank deposited the net amount of collections into the debtor’s operating account or made that amount available for reborrowing. The collections did not permanently reduce the available credit.

The U.S. Trustee billed the debtor based on the assumption that daily collections of receivables swept by the bank were “disbursements” to the bank. The quarterly fee just on amounts swept by the bank in temporary reduction of the revolver amounted to about $42,000.

The debtor therefore challenged the U.S. Trustee’s definition of “disbursements” and contended that the proper amount of the quarterly fee should only be some $52,000.

In an opinion on September 21, Chief Bankruptcy Judge Catherine J. Furay of Madison, Wis., agreed with the debtor regarding the definition of “disbursements.”

Judge Furay conceded that most courts define the term “expansively” to include “any transfer of funds of the estate.” “Most often,” she said, “payments on revolving lines of credit are considered disbursements.”

Judge Furay distinguished cases in favor of the U.S. Trustee by saying they entailed “settlement of debt, real reduction of debt, or payment of an account payable,” where funds were “permanently leaving the estate.” She said that the money swept by the lender was returned “immediately” to the debtor. There was, she said, “no real change in the underlying economic circumstances.”

“Analyzing the economic realities,” she said, “yields the conclusion these funds functionally belonged to [the debtor] the entire time and were thus not ‘paid out’ or ‘expended’ in the traditional sense of ‘disbursements.’”

Judge Furay sustained the debtor’s objection to the U.S. Trustee’s claim and entered an order effectively ruling that the bank’s collections on the revolver were not “disbursements” subject to the U.S. Trustee’s quarterly fee.

In response to an inquiry from ABI, the U.S. Trustee Program in Washington, D.C., “decline[d] to discuss this pending matter at this time.”