Preferred Alternatives, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
PREFERRED ALTERNATIVES, INC.
DEBTOR
CASE NO.
05-03960-8-ATS
ORDER DENYING MOTION TO AUTHORIZE PAYMENT
OF PREPETITION PAYROLL
The matter before the court is the debtor’s motion to authorize
payment of prepetition payroll. A hearing took place in Raleigh, North
Carolina on September 22, 2005.
Preferred Alternatives, Inc. and Preferred Alternatives of
Tennessee, Inc. filed petitions for relief under chapter 11 of the
Bankruptcy Code on May 16, 2005, and the cases have been
administratively consolidated. On August 3, 2005, the debtor filed the
instant motion to authorize payments of prepetition payroll made on
May 20, 2005, May 27, 2005, and June 3, 2005. The debtor contends that
these payments would have been fully entitled to priority under 11
U.S.C. § 507(a)(3) and that most of the 900 employees would have left
the companies had the payroll not been made. The departure of the
employees would have, in turn, been financially and practically
devastating to the debtor. The debtor also contends that there is
little chance of administrative insolvency in this case, and all of
Case 05-03960-8-SWH Doc 75 Filed 09/22/05 Entered 09/22/05 16:52:24 Page 1 of 2

2
these employee claims would be paid through a chapter 11 plan or in the
event of a liquidation.
The bankruptcy administrator objected to the motion on two
grounds: first, the debtor’s failure to seek authorization of the
payments before it made them as required by Local Bankruptcy Rule 4002-
1(b)(3)(B), instead seeking the forgiveness of the court rather than
its permission; and second, the debtor’s failure to demonstrate that
the payments were necessary.
The court agrees that the debtor should have sought approval of
the payments prior to making them. Accordingly, the motion will be
denied; however, the debtor need not seek reimbursement from its
employees at this time.
Based on the foregoing, the debtor’s motion to authorize payment
of prepetition payroll is DENIED.
SO ORDERED.
DATED: September 22, 2005
Case 05-03960-8-SWH Doc 75 Filed 09/22/05 Entered 09/22/05 16:52:24 Page 2 of 2