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Supreme Court Affirms Rights of a Secured Creditor to Make a Credit Bid

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  6. Supreme Court Affirms Rights of a Secured Creditor to Make a Credit Bid

published May 30, 2012

By Author - LawCrossing
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05/30/12

On Tuesday, the U.S. Supreme Court upheld the ruling of though 7th U.S. Circuit Court of Appeals that said that a secured creditor has the right to make a “credit bid” involving sale of assets as part of a bankruptcy reorganization plan. Though, this point has been long at issue before the courts and several Circuit courts have ruled against such a supposition, in the instant case, the Supreme Court held that the 7th Circuit did not err in its judgment.


While affirming the judgment of the appeals court, Justice Antonin Scalia noted that a debtor may not obtain confirmation of such a Chapter 11 bankruptcy plan that does not permit the bank to make a credit bid at a sale of assets, but allows for sale of collateral under Chapter 11.

U.S. government attorneys in the case said that the right to make a credit bid was integral to the existence of secured creditors, and are essential for lenders such as the U.S. government and other federal agencies which are often prevented from bidding for cash.

The Supreme Court said that the law on the matter was clear, “Although the jargon in this case is complicated, the statutory interpretation question is an easy one.”

The settlement of the issue was important as in recent years, a number of lower courts had denied secured creditors from their rights to make credit bids while at the same time allowing sale of assets under Chapter 11.

The case involved the bankruptcy of RadLAX Gateway Hotel which wanted to block its lender, the Amalgamated Bank, from credit bidding – that is exchanging its debt for the hotel in a court-overseen auction, instead of paying cash.

The argument placed before the court to block the bank from making a credit bid was that it discourages third parties from participating in the auction. However, the bank argued that denial of their rights to credit bid could result in them having much less than the full value of the assets on auction.

The Supreme Court case is RadLAX Gateway Hotel v. Amalgamated Bank, No. 11-166.
  1. Legal Jobs
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  6. Supreme Court Affirms Rights of a Secured Creditor to Make a Credit Bid

published May 30, 2012

By Author - LawCrossing
( 1 vote, average: 5 out of 5)
What do you think about this article? Rate it using the stars above and let us know what you think in the comments below.

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