On May 29, 2012, the United States Supreme Court resolved a split among the federal courts of appeals on an important bankruptcy issue, agreeing with arguments Morrison & Foerster advanced on behalf of Amalgamated Bank. In a unanimous opinion in RadLAX Gateway Hotel, LLC v. Amalgamated Bank,1 the Court held that a Chapter 11 plan of reorganization that provides for a sale of a secured creditor’s collateral free and clear of liens must afford that secured creditor the right to credit bid. The decision is significant because it allows a secured creditor to protect the benefit of its bargain to either be repaid in full or take possession of its collateral, by preventing the debtor from stripping the creditor’s lien for an amount at less than the creditor thinks the property is worth.
BACKGROUND
At the height of the last economic bubble, Amalgamated Bank and its co-lender (“the Lenders”) made loans to two related sets of debtors that separately owned two hotels and related properties. The properties and related assets secured the loans, which exceeded $300,000,000 in total. By 2009, the debtors were unable to make their loan payments; they filed voluntary Chapter 11 petitions under the Bankruptcy Code on August 19, 2009. By that time, the value of the Lenders’ collateral had dropped far below the debt it secured. Thus, there were no unencumbered assets in the debtors’ estates from which to pay unsecured creditors without the Lenders’ consent.
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