The United States Supreme Court emphatically upheld a secured creditor’s right to credit bid in bankruptcy cases. In RadLAX Gateway Hotel, et al. v. Amalgamated Bank, 566 U.S.___ (May 29, 2012), the Court found the case an "easy" one to resolve: when a secured creditor is denied the right to credit bid its debt in the sale of its collateral as a part of a bankruptcy plan, it will not receive the "indubitable equivalent" of its secured claim in the form of cash generated from the sale. The Court's unanimous decision should help restore certainty in lending.
The Debtors purchased a hotel and real estate for development but ran out of funds. The Debtors commenced chapter 11 bankruptcy cases and proposed a bankruptcy plan to sell substantially all assets pursuant to a related motion to establish bidding procedures. The bidding procedures did not permit the lender to credit bid and forced the lender to bid cash. In addition, the bankruptcy plan provided that the secured claim would receive the cash generated from the sale and the plan would be “crammed down” over the secured creditors’ objection. The bankruptcy court denied the sale procedures motion, certified the ruling for direct appeal to the Seventh Circuit (which affirmed), and the Supreme Court granted certiorari.
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