Supreme Court to Tackle Credit Bidding Rights in Chapter 11 Plans

On April 23, 2012, the United States Supreme Court heard oral argument on the issue of whether secured creditors have the absolute right to credit bid their secured claims in sales of encumbered assets pursuant to a chapter 11 plan. There is currently a split amongst the Circuit Courts of Appeal on this issue.

In In re River Road Hotel Partners, LLC, 651 F.3d 642 (7th Cir. 2011), the Seventh Circuit Court of Appeals recently upheld a lower court ruling denying confirmation of a chapter 11 plan because the plan proposed to sell encumbered assets free and clear of liens without allowing the lenders to credit bid their claims during the sale. A discussion of the River Road case is covered in an earlier blog.

The Seventh Circuit’s ruling was contrary to the decisions of the Fifth Circuit and Third Circuit Courts of Appeal in In re Pacific

Lumber Co., 584 F.3d 229 (5th Cir. 2009) and In re Philadelphia Newspapers LLC, 599 F.3d 298 (3d Cir. 2010). In those cases, both Circuit Courts found that, in lieu of including credit bidding rights, plans could be deemed “fair and equitable,” and thus confirmable, if they provided the secured lenders with “indubitable equivalent” value under section 1129(b)(2)(A)(iii) of the Bankruptcy Code (which sits in juxtaposition to clause (ii) of section 1129(b)(2)(A) and is separated from clause (ii) by the conjunction “or”).

As the issue is now ripe for an appeal, on December 12, 2011, the Supreme Court granted the River Road debtors’ petition for certiorari. In the appeal, the debtors point out that the text of section 1129(b)(2)(A)(iii) is unambiguous and permits a plan proponent to sell encumbered assets without providing for credit bidding, so long as the plan provides secured creditors with the indubitable equivalent value at confirmation. In contrast, the secured lenders argued that in drafting clause (ii) of section 1129(b)(2)(A) of the Code, Congress expressly protected a secured creditor’s right to credit bid when its collateral is being sold under a plan.

The Supreme Court will likely announce its decision by the summer. The awaited decision, which secured lenders around the country are closely monitoring, will assuredly impact the way that chapter 11 plans are structured in the future.

 



Categories: Recent Case Law, Recent News

3 replies

  1. Credit repair agnecies can help, but it does go on your credit record. If you have gotten too far in debt, you may not be able to pay the payments the repair agency set up for you. Bankruptcy can cost 1000.00 or more dollars, and it stays on your record for 10 years not 7, and it also costs alot afterwards, because you are high risk after the bk, so your pay alot most in intrest. I had to claim bk 4 years ago, and it was a difficult decision, not to be taken lightly. Alot changed, but I have taken great pains to improve my credit since. Talk to your lawyer and see what options you have. Try to avoid bankruptcy if you can.

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  2. If the amounts may becmoe manageable. I’d say neither. It took me awhile, but I started repairing my credit myself. Constantly monitoring my report and paying some of the bills I owed. Just as well I started a few new accounts and I keep them in perfect standing. My credit score rose over 75 points in the past year and I still have a judgement and a repo on it. Also after 7 years some of those marks will fall off anyway. Why extend them for 7 to 10 more years from the date you file for one of those options. That’d be 2015 from this year.Cost is no more than you already owed. Consolidation may leave a bad mark on your credit statement. Bankruptcy no explanation needed. Talk to a lawyer about your bankruptcy options if that’s what you think you need.

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  1. Supreme Court Upholds Secured Creditor’s Right to Credit Bid – Corporate Restructuring Review

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