• Third Circuit Holds Secured Creditors Have No Absolute Right to Credit Bid at a Plan Sale
  • April 5, 2010 | Authors: Alan W. Kornberg; Stephen J. Shimshak
  • Law Firm: Paul, Weiss, Rifkind, Wharton & Garrison LLP - New York Office
  • Credit bidding of debt held by a secured creditor at a sale of collateral under section 363 of the Bankruptcy Code has become commonplace. Does a secured creditor have that same ability in a sale under a chapter 11 plan? Most thought so, but according to the Third Circuit Court of Appeals, not always. In a split decision of major significance, the Third Circuit recently held in In re Philadelphia Newspapers, LLC that a secured creditor does not have an absolute right to credit bid under section 1129(b) of the Bankruptcy Code when collateral is sold pursuant to a plan of reorganization rather than in a sale under section 363 of the Bankruptcy Code. Writing for the majority, Circuit Judge Fisher held that the Bankruptcy Code permits debtors to conduct a sale under a plan without allowing a secured lender the chance to credit bid, as long as the plan provides a secured lender with the “indubitable equivalent” of its secured claim.