The Second Circuit Court of Appeals in In re Ames Department Stores, Inc ., 582 F.3d 422 (2d Cir. 2009), considering an issue of first impression at the circuit level, held that Section 502(d) of the Bankruptcy Code does not bar allowance of an administrative claim of a creditor who is alleged to have received a preferential transfer. The question addressed in Ames concerns the interplay between Section 502(d), which prevents payments to creditors who have received improper payments, and Section 503, which authorizes payment of the necessary costs and expenses of preserving the bankruptcy estate.
Section 502(d) governs the disallowance of claims by any party that has received an illegitimate “transfer” from the bankruptcy estate until such a debt is recovered by the bankruptcy estate. The text of Section 502(d) provides:
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