Yesterday, the United States Supreme Court held that sales of assets pursuant to chapter 11 plans must permit credit bidding by their secured lenders in order to satisfy the requirements for confirmation of a chapter 11 “cramdown” plan.¹

Today, the Supreme Court of the United States issued its much awaited decision in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ______ (2012). The noteworthy decision resolves any uncertainty surrounding a secured creditor’s right to credit bid in a sale under a chapter 11 plan which arose after cases like Philadelphia Newspapers 599 F.3d 298 (3d Cir. 2010) curtailed the right.

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 Vitro, S.A.B de C.V v. ACP Master, Ltd., et al., Case No. 11-33335-HDH-15 (N.D. Tex. 2011), is a decision by a bankruptcy court but contains discussion of the issue often arising in contentious international litigation:  attempts to enjoin proceedings in other countries in favor of proceedings in the U.S., or attempts to enjoin proceedings in the U.S.

Introduction

The United States Court of Appeals for the Third Circuit recently issued an important decision on the valuation of collateral of secured creditors and “lien-stripping” in Chapter 11 cases. In In re Heritage Highgate, Inc.,¹ the court held that in a Chapter 11 case, the value of a secured creditor’s collateral under §506(a) of the Bankruptcy Code² was the fair market value of the property as established by expert testimony and it was permissible to “strip the lien” of the creditor where it was unsupported by collateral value.

The bankruptcy case of TOUSA, Inc. and its various subsidiaries (collectively “Tousa”) is one where lenders have seen their fortunes rise and fall. On March 15, 2012, they fell again when the Eleventh Circuit¹ (the “Circuit Court”) reversed the District Court’s opinion and reinstated the Bankruptcy Court’s order, which had disgorged over $400 million from Tousa’s senior lenders and avoided certain guarantees and liens granted to them by the Conveying Subsidiaries (defined below).

On April 17, 2012, the Northern Mariana Islands Retirement Fund (the “Fund”) became the first United States public pension fund to seek formal bankruptcy protection. The Fund, which provides retirement benefits to government employees of the Commonwealth of the Northern Mariana Islands (the “Commonwealth”) a U.S. territory, listed $256 million in assets and $1 billion in liabilities and has alleged it will exhaust its claims paying ability by as early as 2014. ”

In Senior Transeastern Lenders v. Official Committee of Unsecured Creditors (In re TOUSA, Inc.), the Eleventh Circuit Court of Appeals reinstated the decision of the United States Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”) in which the Bankruptcy Court avoided the liens given by TOUSA’s subsidiaries to new lenders and permitted the recovery of the proceeds of the new loan from other TOUSA lenders that had taken the funds in repayment of their TOUSA guaranteed loans.

Avoidance Preferences Generally

As many creditors have experienced firsthand, the bankruptcy code allows a debtor, trustee or other estate representative to recover certain payments made within 90 days of the date a bankruptcy case was filed.