The U.S. Supreme Court has ruled that a secured creditor cannot be denied its right to “credit bid”—i.e., to offset the amount of its debt against the purchase price of assets, rather than bidding in cash—in sales of collateral undertaken in connection with plans of reorganization under Chapter 11 of the Bankruptcy Code. In so ruling, the Court resolved a widely publicized split of authority among the Circuit Courts of Appeal, and rejected the Third Circuit’s ruling in the Philadelphia Newspapers case.¹

The US Court of Appeals for the Seventh Circuit has weighed in on the question of whether a secured creditor’s ability to credit bid—to offset the amount of the creditor’s debt against the purchase price of sale assets rather than bid in cash—is a right guaranteed by statute even in “cramdown” plans of reorganization conducted under Chapter 11 of the Bankruptcy Code. On June 28, 2011, the court ruled in favor of secured creditors with its much anticipated decision in In re River Road Hotel Partners, LLC (River Road).1

BNY Corporate Trustee Services Limited v Eurosail-UK 2007-3BL Plc & others [2011] EWCA Civ 227

The Court of Appeal has allowed companies around the country to breathe a solvent sigh of relief, as it has held that the so-called “balance sheet” test of insolvency in s123(2) Insolvency Act 1996 is intended to apply where a company has reached a “point of no return” rather than being used as a “mechanistic, even artificial, reason for permitting a creditor to present a petition to wind up a company”.  

Overview

We sent to you earlier this week an Alert on "Chrysler Bankruptcy Filing and Preliminary Impact on Suppliers." As we promised, below is an update based upon our review of the case and observations at the hearings.

Essential Supplier Motion

The Court approved treatment of essential suppliers on a temporary basis. Here is a summary of the Interim Order: