The United States Supreme Court, in the case of Radlax Gateway Hotel, LLC v. Amalgamated Bank (“Radlax”), ruled that secured creditors have the same right to credit bid in collateral sales under a plan of reorganization as they do in sales under Section 363 of the Bankruptcy Code (“Section 363 Sales”). In doing so, the Court rejected the argument that the Bankruptcy Code (the “Code”) provided Chapter 11 debtors with the alternative of offering the secured creditor the “indubitable equivalent” of its claim, finding that the structure of the relevant Bankruptcy Code section precluded that interpretation.

The Radlax decision reaffirms the credit bidding rights of secured creditors, which provide a disincentive to “bottom feeders” to offer inadequate bids since they will be faced with the prospect of being outbid by the secured creditor. This may have the effect of encouraging more 363 Sales, which can liquidate assets faster, easier, and less expensively than a full blown plan confirmation process.

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