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90 Second Lesson: Credit Bidding in Plan Sales

Editors’ Note: this is part of our irregular series in which we answer readers’ questions. If you have a question, submit it to info@dailydac.com and we will try to answer it.

90 Second Lesson: Credit Bidding in Plan Sales

QUESTION:

A private equity investor wrote in recently asking us to address credit bidding in the aftermath of Radlax.

ANSWER:

Thanks to the 2012 decision by the U.S. Supreme Court in RadLax, secured creditors can again rest easy in knowing that they have the right to credit bid in plan sales in most circumstances. Prior to 2009, it seemed well-settled and uncontroversial that, in order for a debtor to confirm a plan that proposed to sell property free and clear of a secured creditor’s lien by way of the cramdown provisions of 11 U.S.C.A. § 1129(b), a secured creditor must be afforded the right to credit bid. In the three years leading up to RadLax, however, a secured creditor’s right to credit bid in the context of plan sales began being called into serious question, with the United States Circuit Courts of Appeal in the Fifth, Third, and Seventh Circuits issuing opinions addressing this issue, and causing a clear split between the Circuits.  See In re Pacific Lumber Co., 584 F.3d 229 (5th Cir. 2009); In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010), as amended (May 7, 2010); and River Road Hotel Partners, LLC v. Amalgamated Bank, 651 F.3d 642 (7th Cir. 2011), aff’d, 132 S. Ct. 2065, 182 L. Ed. 2d 967, 56 Bankr. Ct. Dec. (CRR) 144, 67 Collier Bankr. Cas. 2d (MB) 483, Bankr. L. Rep. (CCH) P 82218 (2012).  As explained here in more details by David K. Bowsher, Esq. and Tiffany A. DiIorio, on May 29, 2012, in RadLax Gateway Hotel, LLC v. Amalgamated Bank, the Supreme Court settled the dispute among the circuits and held that, where a debtor seeks confirmation of its plan by way of the cramdown provisions of the Bankruptcy Code and that plan proposes to sell assets free and clear of a secured creditor’s claim, the debtor must afford the secured creditor the right to credit bid.

Note: This 90 Second Lesson is based, in substantial part, in material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives for and Against Distressed Businesses, with permission of Thomson Reuters. For more information about these publications, please visit www.legalsolutions.com.

About The DailyDAC Editors

The editors and editorial board of DailyDAC include preeminent restructuring and insolvency professionals, journalists, and editors. They are devoted to providing reliable and plain English education and deal intelligence about assignments, corporate bankruptcy, receiverships, out-of-court workouts an similar topics.

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