In an important victory for secured lenders, the U.S. Supreme Court today confirmed that a secured creditor has a right to credit-bid under any Chapter 11 plan that involves the sale of its collateral. RadLAX Gateway Hotel v. Amalgamated Bank, --- S.Ct. ----, No. 11-166, 2012 WL 1912197 (U.S. May 29, 2012). In its opinion affirming the Seventh Circuit's decision, Justice Scalia found no ambiguity in the Bankruptcy Code's "cramdown" provisions relating to credit-bidding, ruling that whenever a plan proposes the sale of collateral, a creditor holding a lien on that collateral has the right to bid in its debt at the sale. The alternative "indubitable equivalence" test of §1129(b)(2)(A)(iii) of the Bankruptcy Code is reserved for plans that do not involve a sale of collateral.
According to Justice Scalia, the debtor's attempt to jump over the "credit-bid" provision was "hyperliteral and contrary to common sense" and "surpassingly strange." Instead, Justice Scalia found this to be "an easy case" where the specific credit-bid provisions of the Bankruptcy Code take precedence over the general provisions. By preserving the right to credit-bid, the U.S. Supreme Court rejected the Third Circuit's holding in In re Philadelphia Newspapers, LLC, 599 F. 3d 298 (CA3 2010).
Goldberg Kohn Ltd., representing the Commercial Finance Association, served as one of the co-authors of the amicus brief filed by various lending industry trade associations urging the Supreme Court to validate the right to credit-bid.