Today, the Supreme Court of the United States issued its much awaited decision in RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ______ (2012). The noteworthy decision resolves any uncertainty surrounding a secured creditor’s right to credit bid in a sale under a chapter 11 plan which arose after cases like Philadelphia Newspapers 599 F.3d 298 (3d Cir. 2010) curtailed the right. In a unanimous decision (Kennedy recused), the Court held that debtors may not sell their property free and clear of liens under a plan of reorganization without allowing lienholders to credit bid. In so concluding, the Court settled a circuit split on the issue between the Third Circuit (see In re Philadelphia Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010) (holding that secured lenders do not have an absolute right to credit bid in an auction process carried out under a chapter 11 plan)) and the Seventh Circuit (see River Road Hotel Partners, LLC v. Amalgamated Bank, 651 F.3d 642 (7th Cir. 2011) (declining to follow Philadelphia Newspapers and upholding secured lender’s right to credit bid in a sale under a chapter 11 plan)).

Secured creditors are now guaranteed the same rights to credit bid, whether the sale of a debtor’s assets is through a plan of reorganization or under section 363 of the Bankruptcy Code.

Please see full update for more information.