Issue link: https://mbozikis.ufcontent.com/i/1422521
147 2. Ordinary Course of Business and the Business Judgment Rule When reviewing an action taken by a trustee or debtor-in- possession in a bankruptcy proceeding, there are two relevant inquiries—first, whether the action is in or out of the ordinary course of the debtor's business and second, whether the action is within the trustee's reasonable exercise of its business judgment. Whereas the former question generally applies only to transactions where the trustee seeks to use, sell or lease property of the estate, the latter applies not only to those transactions, but also to many other actions in a bankruptcy proceeding, including, for example, decisions regarding assumption or rejection of executory contracts and unexpired leases. Although nothing in the Bankruptcy Code provides a framework for determining if a transaction is in "the ordinary course of business," most courts undertake a two-part inquiry to answer this question. The first step (commonly referred to as the "horizontal dimension" test) considers "whether, from an industry- wide perspective, the transaction is of the sort commonly undertaken by companies in [the applicable] industry." In re Roth Am., Inc., 975 F.2d 949, 953 (3d Cir. 1992). The second step (known as the "vertical dimension" test) "analyzes the transactions 'from the vantage point of a hypothetical creditor and [inquires] whether the transaction subjects a creditor to economic risk of a nature different from those he accepted when he decided to extend credit.'" Id. (internal citation omitted). Both tests must be satisfied for a court to deem a transaction to be in "the ordinary course of business." Generally, the decisions of a debtor-in-possession or trustee made in the ordinary course of operating a debtor's business are protected by the business judgment rule. See In re Integrated Res., Inc., 147 B.R. 650, 656 (S.D.N.Y. 1992) (once a debtor-in- possession has articulated a valid business justification for a decision, a presumption arises that such decision was made "on an informed basis, in good faith and in the honest belief that the