Two years ago we published an alert about the decision of the United States Court of Appeals for the Third Circuit in In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010). That case held that in a sale of a debtor’s assets under a Chapter 11 bankruptcy plan of reorganization, the debtor could prohibit credit bidding by secured creditors. Now the Supreme Court of the United States has rejected the reasoning behind that holding and ruled that under normal circumstances a secured creditor’s right to credit bid cannot be taken away by a plan’s bidding structure.

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

In what it described as “an easy decision,” the U.S. Supreme Court issued its eagerly anticipated decision in RadLAX Gateway Hotel, LLC et al. v. Amalgamated Bank¹ on May 29, 2012.

Recently, the Supreme Court of the United States held that a debtor cannot confirm a Chapter 11 “cramdown” plan that provides for the sale of collateral free and clear of a secured creditor’s lien when it denies the secured creditor’s right to credit bid at the auction.  This should be welcome news to members of the secured lending community because guaranteeing the right of secured creditors to credit bid will reduce the risk of making such loans.

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In a major victory for secured creditors, the United States Supreme Court, on May 29, 2012, unanimously held that a chapter 11 plan involving a sale of secured property must afford the secured creditor the right to credit bid for the property under section 363(k) of title 11 of the United States Code (the “Bankruptcy Code”).¹ In so holding, the Supreme Court resolved the split that had emerged among the United States Circuit Courts of Appeals, as illustrated by the Seventh Circuit’s decision below,² which contrasted with recent decisions from the Third and Fifth Circui

In a decision of considerable importance for bankruptcy debtors and lenders, the Supreme Court handed down its ruling earlier today in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, --- S.Ct. ----, 2012 WL 1912197 (2012). In this highly anticipated decision, the Supreme Court held that a debtor may not confirm a plan under the “cramdown” provision of 11 U.S.C. § 1129(b)(2)(A) where the plan proposes to sell a secured lender’s collateral without affording the creditor the opportunity to credit-bid for the collateral.

In a unanimous decision, the U.S. Supreme Court held that debtors may not obtain confirmation of a Chapter 11 cramdown plan that provides for the sale of collateral free and clear of a creditor’s lien but does not permit the creditor to credit-bid at the sale. InRadlax Gateway Hotel, LLC et al. v.

In re SW Boston Hotel Venture, LLC, 460 B.R. 38 (Bankr. D. Mass. 2011)

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Summary

In re Nance Properties, Inc., Case No. 11-06197- 8-JRL (Bankr. E.D.N.C. Nov. 8, 2011)

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