Restructuring

Contributed by Abigail Lerner
Yesterday the United States Supreme Court heard oral argument on an issue that has caused a split among the circuit courts and has captured the attention of debtors and secured creditors alike – credit bidding.  In the River Road Hotel Partners, LLC v. Amalgamated Bank case, the Seventh Circuit affirmed the bankruptcy court’s decision to deny confirmation of the River Road debtors’ plans finding the plans flawed because they sought to sell encumbered assets free and clear of liens without allowing the lenders to credit bid.  Our blog post on the River Road decision can be found here.  This ruling ran contrary to the decisions of the Seventh Circuit’s sister circuits on the issue.  Specifically, the Fifth Circuit, in Pacific Lumber, and the Third Circuit, in Philadelphia Newspapers, held that a plan that contemplates a sale of assets free and clear of liens may be deemed “fair and equitable” under section 1129(b)(2)(A) of the Bankruptcy Code even in the absence of a provision that allows for credit bidding.
Given this circuit split, on December 12, 2011, the Supreme Court granted the River Road debtors’ petition for certiorari, agreeing to tackle the question of whether a debtor may pursue a chapter 11 plan that proposes to sell assets free of liens without allowing the secured creditor to credit bid, but instead providing it with the indubitable equivalent of its claim under section 1129(b)(2)(A)(iii) of the Bankruptcy Code.  Our blog post on Supreme Court’s decision to grant certiorari can be found here.
The issue ripe before the Supreme Court, the River Road debtors on the one hand, and Amalgamated Bank on the other, argued their positions to the Supreme Court on Monday morning.  According to the debtors/petitioners, the text of 1129(b)(2)(A) is unambiguous and permits a debtor to sell assets free of liens without credit bidding so long as it provides the secured creditor with the indubitable equivalent of its secured claim at plan confirmation.  According to Amalgamated Bank/respondent, however, in drafting clause (ii) of section 1129(b)(2)(A) of the Bankruptcy Code, Congress explicitly required that for a secured creditor’s collateral to be sold free an clear of its liens, the plan must provide the secured creditor the right to credit bid.
During Monday’s oral argument, Amalgamated ceded a portion of the thirty minutes it was afforded to make its argument to the United States, who appeared as amicus curiae in support of the respondent.  Agreeing with Amalgamated’s position, the United States agreed that in the absence of good cause, a plan may not sell encumbered property free and clear of the lien of a non-consenting secured creditor without permitting the creditor to credit bid at the sale of the property.
The Supreme Court will likely announce its decision – one, no doubt, that will impact the ways in which sales pursuant to chapter 11 plans are structured – by the end of June.