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.

Madoff trustee Irving Picard is seeking to recoup nearly $65 billion for investors. However, he has only been able to procure approximately $9 billion. Of that $9 billion, approximately $6.4 billion is tied up in challenges, leaving only $2.6 billion for Picard to disburse. Picard has actually paid investors around $330 million, while reserving the remaining $2.3 billion in customer accounts.  

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

Litigation arising from the Tousa, Inc. fraudulent transfer claims has been working its way through the legal system since 2009, and the recent decision issued by the 11th Circuit Court of Appeals (the “11th Circuit”), has significant ramifications for any party holding debt, whether that debt is secured, unsecured, original issue or purchased on the secondary market. Regardless of the type of debt, or its source, Tousa illustrates that lenders must heighten their due diligence efforts to protect themselves from the risk of a lawsuit alleging fraudulent transfer liability.

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.

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 U.S. Supreme Court today in Radlax Gateway Hotel, LLC, et al. v.