Flagstaff Foodservice Corporation filed petitions for reorganization under chapter 11. Flagstaff continued to operate their businesses as debtors in possession. P had made secured loans and advances on accounts receivable and inventory. Flagstaff owed P $22 million secured by assets worth $42 million. Just before Chapter 11, Flagstaff's attorneys met with P to obtain immediate short-term financing to maintain sufficient cash flow to support Flagstaff's operations. Flagstaff was permitted to use up to $750,000 of P's collateral for the limited period of five days. Flagstaff's attorneys also prepared an application for a more permanent financing arrangement with P. The bankruptcy court authorized Flagstaff to borrow additional money from P, the loans to be secured by a super-priority interest in all present and future property of the estate. Flagstaff had generated enough income from its accounts receivable to pay all of P's pre-petition liabilities. During the Chapter 11 proceedings, P advanced an additional $9 million. Flagstaff's reorganization ultimately failed. The realizable value of the collateral which remained was insufficient to satisfy the unpaid balance. D petitioned the court to award them approximately $250,000 and to direct that interim fees and disbursements of attorneys and accountants be paid from the encumbered collateral. The court agreed, and P appealed. The district court affirmed, and P appealed.

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