Circuit Court Sides With Secured Lender -- Holds Credit Bidding Too Important To Be Prohibited in Bankruptcy Sales, Even Those Under a Plan

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The United States Court of Appeals for the Seventh Circuit issued its much anticipated decision in In Re River Road Hotel Partners, LLC, __ F.3d __ (7th Cir., June 28, 2011). In the closely watched case, the Seventh Circuit declined to follow the Third Circuit’s decision in Philadelphia Newspapers, 599 F.3d 298 (3d Cir. 2010), holding instead that secured lenders have the right to credit bid in “free and clear” asset sales where their liens are being stripped, whether those sales occur under section 363 of the Bankruptcy Code or under a chapter 11 plan. In so ruling, the Court described the right to credit bid codified in section 363(k) of the Bankruptcy Code to be an important and promised protection for lenders that is essential to prevent undervaluation of assets in bankruptcy cases. We previously wrote on the Philadelphia Newspapers decision and the issue of credit bidding in “Reports Of Credit Bidding's Death Are Greatly Exaggerated”.

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