The Debate Continues: The Seventh Circuit Upholds Credit Bidding in a “Free and Clear” Plan Sale


Adam A. Lewis, Norman S. Rosenbaum, Stefan W. Engelhardt, John Pintarelli, and Erica J. Richards of Morrison & Foerster LLP’s Bankruptcy & Restructuring and Litigation groups successfully represented Amalgamated Bank, as Administrative Agent for the secured lenders, in an appeal before the Seventh Circuit Court of Appeals brought by the debtors. Through extensive briefing, a trial, and oral argument by Mr. Lewis, the Morrison & Foerster team blocked the debtors from proceeding with a “free and clear” sale of the secured lenders’ collateral under a proposed chapter 11 bankruptcy plan sale that sought to prohibit the secured creditors’ statutory right to credit bid their claims.

In a decision that is expected to have wide-ranging implications for secured lenders and reorganization plan sales nationwide, the Seventh Circuit’s June 28, 2011 opinion in In re River Road marks a jurisdictional split on the contours of credit bidding in bankruptcy. While this decision is squarely at odds with decisions of the Courts of Appeals for the Third and Fifth Circuits, its holding is in many respects a validation of Judge Ambro’s robust dissent in Philadelphia News, and is arguably more aligned with mainstream bankruptcy thinking on credit bidding issues.

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