Take Me to the River (Road): The Seventh Circuit Prepares to Weigh In On Credit Bidding

Take Me to the River (Road): The Seventh Circuit Prepares to Weigh In On Credit Bidding

The U.S. Court of Appeals for the Seventh Circuit has taken under advisement the latest case involving the now contentious issue of credit bidding. 

Judge Bruce Black of the United States Bankruptcy Court for the Northern District of Illinois last year refused to permit the debtors in In re River Road Hotel Partners LLC, et al. ("River Road") to circumvent a secured lender's right to credit bid in connection with a sale of assets subject to the lender's lien. The debtors in River Road were relying on the Third Circuit Court of Appeals' controversial decision in Philadelphia Newspapers, which upheld a debtor's efforts to prevent its secured lenders from credit bidding in connection with an auction held under a plan of reorganization. 

The majority opinion in Philadelphia Newspapers determined that, notwithstanding the express reference in subsection (ii) of Section 1129(b)(2)(A) to the right to credit bid in connection with a sale "free and clear" of liens pursuant to a plan of reorganization, a sale "free and clear" could also take place pursuant to a plan, without allowing the lenders to credit bid, under Section 1129(b)(2)(A)(iii), the "indubitable equivalent" provision. Third Circuit Judge Thomas Ambro, a bankruptcy practitioner of many years, penned a lengthy dissent, noting that the result flew in the face of the established principle that property rights in bankruptcy look to applicable non-bankruptcy law, and the long standing expectation that the Bankruptcy Code expressly protects such non-bankruptcy rights - particularly the right of a secured creditor to look to its collateral in the event of non-payment.   

Judge Black expressly rejected the reasoning of the Philadelphia Newspapers majority, stating that he found the dissent from Judge Ambro, "well-reasoned [and] more persuasive."      

Read this article in its entirety at Kelley Drye & Warren LLP's Bankruptcy Law Insights blog