Statutory construction is a holistic endeavor. A provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme -- because the same terminology is used elsewhere in a context that makes its meaning clear or because only one of the permissible meanings produces a substantive effect that is compatible with the rest of the law.
Respondent, Timbers of Inwood Forest Associates, Ltd., was an owner of an apartment project which borrowed money from the petitioner, United Savings Association of Texas. Respondent gave the association a security interest in its apartment project, which interest included an assignment of rents. Respondent subsequently filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code, and so triggered the provision of 11 USCS 362(a) which automatically stays actions to enforce liens. In proceedings before the Bankruptcy Court, it was established that the amount owed by the respondent exceeded the value of the collateral, which was appreciating, but only slightly. Respondent agreed to pay to the savings association the post-petition rents from the project, less operating expenses. However, the savings association, believing that it was entitled to compensation for the delay caused by the automatic stay in foreclosing on the collateral, moved for relief from the automatic stay under 11 USCS 362(d)(1), which authorizes the termination or modification of the stay if, among other things, a creditor's property interests do not receive adequate protection. The Bankruptcy Court agreed with the savings association, and conditioned continuance of the stay on the project owner making monthly payments, at the market rate of 12 percent per year, on the estimated amount that would be realizable on immediate foreclosure.The United States District Court for the Southern District of Texas affirmed. However, on appeal, a panel of the United States Court of Appeals for the Fifth Circuit reversed.
Was the petitioner entitled to compensation for the delay caused by the automatic stay in foreclosing on their collateral?
The Court held that an undersecured creditor of a debtor in bankruptcy is not entitled to receive interest on the creditor's collateral during a stay in order to insure adequate protection under 362(d)(1). According to the Court, Congress had not intended to provide undersecured creditors with periodic post-petition interest payments on the value of their collateral as an element of adequate protection.