From time immemorial, banks and other secured lenders have relied on their ability to "credit bid" for their collateral as a key source of protection and negotiating leverage against debtors and competing bankruptcy acquirors. Credit bidding secured debt rather than paying cash for collateral has been an effective counterweight against a debtor’s protections of the automatic stay and its exclusive right to control the plan formulation process and bankruptcy sales under Section 363 of the Bankruptcy Code.
Section 1129(b)(2)(A)(iii) of the Bankruptcy Code allows a court to find that a chapter 11 “cramdown” plan is “fair and equitable” to an objecting class of secured creditors if the plan provides for the realization by such holders of the “indubitable equivalent” of their claims. Section 1129(b)(2)(A)(ii), through reference to Section 363(k), permits the sale of collateral free and clear of liens if secured creditors are allowed to “credit bid”—that is, to bid the value of their claim in an auction of the collateral.
The McCaskill-Bond Amendment to the Federal Aviation Act provides that a merger of air carriers requires the new entity to merge the seniority lists of the two carriers’ employees. Republic Airways acquired Midwest Airlines, and thereafter the Teamsters Union, which represented the flight attendants at Republic’s older carriers, refused to integrate the seniority lists for flight attendants and placed Midwest’s flight attendants at the bottom of the seniority roster. A group of Midwest flight attendants challenged the action, asserting that it violated the amendment.
In September 2011, in In re Longview Aluminum, LLC, 10-2780 (7th Cir. 2011), the Seventh Circuit Court of Appeals held that members of an LLC are insiders for preferential transfer purposes under the Bankruptcy Code. This is the case even if the member holds only a minority membership interest and is not actually in control of the enterprise.
Introduction
Postconfirmation liquidation and litigation trusts have become an important mechanism in a chapter 11 bankruptcy estate’s arsenal, allowing for the resolution of claims and interests without needlessly delaying confirmation in the interim. The specter of postconfirmation litigation may seem unremarkable. Section 1123(b)(3)(B) of the Bankruptcy Code states that a plan may provide for retention or enforcement by the reorganized debtor, the trustee, or a representative of the estate of any claim or interest belonging to the estate.
In a victory for secured creditors, the Seventh Circuit Court of Appeals recently held inRiver Road Hotel Partners, LLC v. Amalgamated Bank (In re River Road Hotel Partners, LLC), 2011 WL 2547615 (7th Cir. June 28, 2011), that a dissenting class of secured lenders cannot be deprived of the right to credit-bid its claims under a chapter 11 plan that proposes an auction sale of the lenders’ collateral free and clear of liens.
IN RE: LONGVIEW ALUMINUM, L.L.C. (September 2, 2011)
A secured creditor's option to credit bid its claim where its collateral is to be sold under a chapter 11 plan is an important protection to ensure that the creditor's collateral is not sold for less than its actual value. Rather than accepting the cash generated by a low bid, the creditor can submit its own bid, up to the amount of its secured claim, and recover its collateral instead. This traditionally recognized right was upset by two fairly recent circuit court decisions, one from the Fifth Circuit and one from the Third Circuit. In re Pacific Lumber Co., 584 F.3d 229 (5th Cir.
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