The Third Circuit recently held that a bankruptcy court may confirm a Chapter 11 plan that includes a sale of assets in which secured creditors are not permitted to “credit bid” for the assets. In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010). In that case, the debtors in possession, companies that own and operate the Philadelphia Inquirer and Philadelphia Daily News, moved the bankruptcy court to approve bid procedures for an auction of the debtors’ assets. Id. at 302.

DRI- The Voice of the Defense Bar

The ability of secured creditors to credit bid in sales conducted under bankruptcy plans of reorganization is an important right that protects them against low bids from rival purchasers. A secured creditor is typically permitted to offset, or bid, its secured allowed claim against the purchase price in a sale of collateral conducted under section 363(b) of the United States Bankruptcy Code.