An article in the November edition of the ABI Journal examines a recent split in circuit courts over the issue of credit-bidding in asset sales through liquidating reorganization plans, and how the issue is now ripe for Supreme Court consideration. Author Alexander Brougham, a law clerk to Bankruptcy Judge A. Benjamin Goldgar (N.D. Ill.), writes that the Seventh Circuit’s decision in In re River Road Hotel Partners could be “the ideal vehicle for the establishment of a uniform nationwide policy on credit-bidding.” The decision of the Seventh Circuit rebuffed decisions by the Third and Fifth Circuits that denied secured creditors the right to credit-bid in asset sales conducted by liquidating reorganization plans.
Credit bidding is an important right that secured creditors typically have in bankruptcy sales allowing them to control the sale of their collateral. When collateral that secures a lien is proposed to be sold at a bankruptcy auction, a secured creditor is typically allowed to bid the amount of its debt as a credit bid. Although credit-bidding has traditionally been seen as available in all bankruptcy sales, the Third Circuit in the case of In re Philadelphia Newspapers LLC and the Fifth Circuit in In re Pacific Lumber Co. upheld auction procedures that barred a secured lender from credit-bidding at a bankruptcy sale. The Seventh Circuit rejected the approaches taken by its sister circuits, arguing that an auction sale without the right to credit-bid could not satisfy the requirements of the Bankruptcy Code.
“Whether practitioners agree or disagree with the Seventh Circuit’s reasoning, they are likely happy to see the credit-bidding issue come one step closer to a nationwide resolution,” Brougham writes. “River Road has created a circuit split ripe for consideration by the Supreme Court.” Under the current circuit split on the issue of credit-bidding, Brougham says the ramifications are critical for lenders and debtors. “Lenders’ uncertainty about the availability of credit-bidding has weakened their bargaining positions and has probably chilled an already-tepid DIP financing market.”
To obtain a copy of “Seventh Circuit Paves the Way for Supreme Court to Decide Credit-Bidding Issue” published in the December/January 2012 edition of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org.
ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.