The following is a summary of a paper prepared for the Pennsylvania Bar Institute.

The decisions by the Bankruptcy Court for the District of Delaware in In re Fisker Auto. Holdings, Inc., and the Bankruptcy Court for the Eastern District of Virginia in Free Lance-Star Publ'g Co., have sparked discussions as to the circumstances justifying the curtailment of a secured creditor's credit bid rights in a sale conducted pursuant to Section 363 of the Bankruptcy Code.

The In re Fisker Auto. Holdings, Inc. case represents the first major case in a post RadLAX world limiting a secured creditor's credit bidding rights under section 363(k) of the Bankruptcy Code. Following the court's lead in Fisker, the Bankruptcy Court for the Eastern District of Virginia in In re Free Lance-Star Publ'g Co. limited a secured creditor's right to credit bid because the secured creditor did not hold valid liens on all of the assets being sold, and because the secured party engaged in a loan-to-own strategy and inequitable conduct that the court found resulted in the depression of the sale price for the debtors' assets.

While the Fisker and Free Lance decisions have provoked discussions regarding limitations on a secured creditor's credit bid rights, a careful review of these cases highlight that they arise out of unique fact patterns and, therefore, may be of limited utility in attempting to limit a secured creditor's credit bid rights. In each of the cases, 1) there were unencumbered assets that were being sold as part of the auction process; 2) the secured creditor had purchased the claims at a deep discount with a stated intention to implement a loan-to-own strategy; and 3) each auction was proposed on a very fast track designed to depress market participation and the value of the debtor's assets. As such, secured creditors seeking to embark on loan-to-own strategies need to assess the applicability of these decisions and proceed cautiously to avoid any unwanted limitation on credit bidding rights in a Section 363 sale context.