How Does RadLAX Impact Conventional Chapter 11 Plan Structures?
Senior Transeastern Lenders v. Official Comm. Of Unsecured Creditors of TOUSA, Inc. (In re TOUSA, Inc.), 2012 US App. LEXIS 9796 (11th Cir. May 15, 2012)
A highly significant ruling involving fraudulent transfers recently decided by the Eleventh Circuit could have a far-reaching impact on distressed lending and investing. In Senior Transeastern Lenders v. Official Committee of Unsecured Creditors (In re TOUSA, Inc.), 2012 WL 1673901 (11th Cir.
October 17, 2012, will mark the seven-year anniversary of the effective date of chapter 15 of the Bankruptcy Code, which was enacted as part of the comprehensive bankruptcy reforms implemented under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
The United States Supreme Court unanimously[1] held that secured creditors have a statutory right to credit bid their debt at an asset sale conducted under a so-called "cramdown" plan. RadLAX Gateway Hotels, LLC et al., v. Amalgamated Bank (In re River Road Hotel Partners, LLC),__S.Ct.__ No. 11-166, 2012 WL 1912197 (U.S. May 29, 2012).
On May 29, 2012, the United States Supreme Court issued its much-anticipated decision in the Chapter 11 bankruptcy cases for RadLAX Gateway Hotel, LLC and its affiliate (together, the “Debtors”). The Court held that when a debtor proposes to sell a secured creditor’s collateral free and clear of the creditor’s lien pursuant to a Chapter 11 bankruptcy plan, the debtor cannot deny the creditor the opportunity to “credit bid” in the sale without cause.
On May 29, 2012, the United States Supreme Court resolved a split among the federal courts of appeals on an important bankruptcy issue, agreeing with arguments Morrison & Foerster advanced on behalf of Amalgamated Bank. In a unanimous opinion in RadLAX Gateway Hotel, LLC v. Amalgamated Bank,1 the Court held that a Chapter 11 plan of reorganization that provides for a sale of a secured creditor’s collateral free and clear of liens must afford that secured creditor the right to credit bid.
The Supreme Court held 8-0 that section 1129(b)(2) of the bankruptcy code requires that if a debtor proposes to sell property under a plan of reorganization it must permit secured lenders to submit credit bids in the sale process. The outcome is consistent with our views of the rights of secured lenders under appropriate bankruptcy practice – however, the Supreme Court’s analysis eschews policy concerns and focuses almost exclusively on the plain language of the statute and applicable canons of statutory construction.
On May 29, 2012, the United States Supreme Court upheld a secured creditor’s absolute right to credit bid when a debtor files a Chapter 11 plan proposing to sell the secured creditor’s collateral free and clear of the secured creditor’s liens. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ___ (2012). In just a little over one month since oral argument, the Supreme Court resolved a conflict between two circuit courts of appeal as to whether a plan could prohibit a secured creditor from credit bidding on its collateral at a sale.
On May 14, 2012, the Third Circuit Court of Appeals in In re Heritage Highgate, Inc., et al., No. 11-1889 (3d Cir. May 14, 2012) clarified the burden of proof with respect to the valuation and ultimate allowance of alleged secured claims under Bankruptcy Code section 506(a).