The attached GT Alert -- Supreme Court Holds that Free and Clear Sale Plan Cannot be Confirmed Without Preserving Secured Creditor’s Credit Bidding Rights -- was prepared by John B. Hutton III and G. Ray Warner.
On May 29, the U.S. Supreme Court in In RadLAX Gateway Hotel, LLC held that a Chapter 11 reorganization plan that proposes the sale of encumbered assets free and clear of liens must honor the secured creditor's right to credit bid its claim in order to be confirmed under the "fair and equitable" standard of the Bankruptcy Code. In so doing, the Supreme Court affirmed the view of the Seventh Circuit and rejected the views of the Third and Fifth Circuits that debtors could use the vague "indubitable equivalence" standard of the third subsection of the secured creditor cram down provision (section 1129(b)(2)(A)(iii)) to circumvent the express grant of credit bidding rights in the second subsection (section 1129(b)(2)(A)(ii)).