Source: http://crowell.com/Practices/Financial-Services/alerts-newsletters/Credit-Bid-Rights-of-Secured-Creditors-Protected-by-US-Supreme-Court
Timestamp: 2013-06-19 21:11:45
Document Index: 11319324

Matched Legal Cases: ['§ 1129', '§ 1129', '§ 1129', '§ 1129', '§ 1129', '§ 1129', '§ 1129']

Financial Services Alerts & Newsletters | Crowell & Moring
The bankruptcy court held, and the Seventh Circuit affirmed, that the debtors' proposed sale procedures violated the specific requirement of Bankruptcy Code § 1129(b)(2)(A)(ii), which mandates that a secured creditor have the right to credit bid at any sale of its collateral pursuant to a plan of reorganization. Id. The debtors appealed to the Supreme Court, asserting that a secured creditor does not have an absolute right to credit bid at a sale conducted pursuant to a plan of reorganization so long as the plan provides that the secured creditor is receiving the "indubitable equivalent" of its secured claim.
(1) the holders of such secured claims must retain the liens securing their claims, and each holder of claims of the class shall receive deferred cash payments totaling at least the allowed amount of such claims, 11 U.S.C. § 1129(b)(2)(A)(i); (2) the plan provides for the sale of the secured creditors' collateral free and clear of all liens on such property, subject to the secured creditor's right to credit bid pursuant to section 363(k) of the Bankruptcy Code, and with such liens attaching to the proceeds of the sale, 11 U.S.C. § 1129(b)(2)(A)(ii); or (3) the plan provides for the realization by the secured creditors of the indubitable equivalent of their secured claims, 11 U.S.C. § 1129(b)(2)(A)(iii).
While the RadLAX Plan did not grant the secured creditor the right to credit bid as contemplated under § 1129(b)(2)(A)(ii), the debtors asserted that the use of the word "or" in describing the plan alternatives under § 1129(b)(2)(A) of the Bankruptcy Code meant that a plan which provided for the sale of the secured creditor's collateral could still be confirmed even without the right to credit bid – so long as the plan satisfied § 1129(b)(2)(A)(iii)'s requirement that the plan provide the secured creditor with the indubitable equivalent of its claim. Id. at *5. The bankruptcy court and the Seventh Circuit rejected this argument. The Supreme Court's Decision
Secured creditors can take comfort in the Supreme Court's decision resolving a split among the Courts of Appeal concerning the right of a secured creditor to credit bid. Under the prior Third Circuit rule, a secured creditor would lack protection against the sale of its collateral at a depressed price unless it was willing to advance cash to recover its collateral at auction (which cash would then be transferred back to the lender only through the plan). Credit bidding enables a secured lender to protect its investment in its collateral by establishing a floor at which it will accept bids on its collateral without having to go further out of pocket by bidding cash. Credit bidding also ensures the ability of a secured creditor to take the collateral back itself and either hold it or sell it in a manner that is not provided for in the bankruptcy case. The Supreme Court has now vindicated this right. 1 Justice Kennedy did not take part in the decision. For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.
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