When entering into secured transactions, most secured lenders long assumed that, even in a bankruptcy, their borrowers would not be able to sell encumbered assets free and clear of the lenders’ liens without the lenders’ consent or, without at least providing the lenders the opportunity to bid their secured debt at an auction.
On June 28, 2011, the United States Court of Appeals for the Seventh Circuit became the latest circuit to weigh in on the hotly contested question of whether a debtor can deny a secured creditor the right to credit bid as part of a Chapter 11 plan providing for the sale of assets encumbered by the secured creditor’s liens. InIn re River Road Hotel Partners, LLC,1 the Seventh Circuit upheld the right of secured creditors to credit bid, a decision that runs directly contrary to recent opinions in the Third and Fifth Circuits.
In a decision that is expected to have wide-ranging implications for secured lenders and reorganization plan sales nationwide, the Seventh Circuit’s June 28, 2011 opinion in In re River Road1 marks a jurisdictional split on the contours of credit bidding in bankruptcy. While this decision is squarely at odds with decisions of the Courts of Appeals for the Third and Fifth Circuits, its holding is in many respects a validation of Judge Ambro’s robust dissent in Philadelphia News,2 and is arguably more aligned with mainstream bankruptcy thinking on credit bidding issues.
In its recent decision, Continental Cas. Co. v. Sycamore Springs Homeowners Association, 2011 U.S. App. LEXIS 15005 (July 22, 2011), the United States Court of Appeals for the Seventh Circuit, applying Indiana law, had occasion to consider whether an underlying suit demanding that the insured undertake measures to prevent future “property damage” triggered coverage under a general liability policy.
Section 546(e) of the Bankruptcy Code's "safe harbor" preventing avoidance in bankruptcy of certain securities, commodity, or forward-contract payments has long been a magnet for controversy. Several noteworthy court rulings have been issued in bankruptcy cases addressing the scope of the provision, including its limitation to transactions involving "financial institutions" as transferors or transferees, its preemption of avoidance litigation that could have been commenced by or on behalf of creditors under applicable non-bankruptcy law, and its application to non-public transactions.
In Mann v. LSQ Funding Group, L.C., 71 F.4th 640 (7th Cir. 2023), reh'g denied, 2023 WL 4684702 (7th Cir. July 21, 2023), the U.S.
The U.S. Court of Appeals for the Seventh Circuit recently rejected a bankruptcy trustee’s avoidance and fraudulent transfer claims, holding that a debt purchase and sale agreement between a bankrupt debtor, its original creditor, and its new creditor was not avoidable because it did not qualify as a transfer of “an interest of the debtor in property.”
Specifically, the Seventh Circuit determined that the transaction had no effect on the bankruptcy estate and the Bankruptcy Code’s avoidance provisions played no role.
On April 19, 2023, the Supreme Court, in a unanimous opinion written by Justice Ketanji Brown Jackson in MOAC Mall Holdings LLC, ruled Bankruptcy Code section 363(m) to be non-jurisdictional, i.e. just a “mere restriction on the effects of a valid exercise” of judicial power “when a party successfully appeals a covered authorization.” Before MOAC, the Third, Sixth, Seventh, Ninth, Tenth and Eleventh Circuits held section 363(m) to be non-jurisdictional, but the Fifth and Second Circuits had diverged.
Reasoning
In a bankruptcy trustee’s adversary action to recover money paid to a collection agency within 90 days prior to the filing of the debtor’s bankruptcy petition, and pursuant to a previous garnishment order, the U.S. Court of Appeals for the Seventh Circuit recently reversed the ruling of a trial court denying the trustee’s application.