An article published in this column nearly 20 years ago discussed the Seventh Circuit’s decision in In re Penrod and similar decisions addressing the circumstances under which a prepetition lien may survive confirmation of a chapter 11 plan.1 In Penrod, the U.S. Court of Appeals for the Seventh Circuit held that a prepetition lien can be extinguished through a chapter 11 plan only where the underlying property is “dealt with” under the plan and the secured creditor both receives notice of the plan and participates in some fashion in the reorganization process.2 As noted in our prior article, the Penrod decision is “ambiguous as to what participation in the reorganization means.” This ambiguity has continued to perplex both bankruptcy courts and practitioners in the 20 years since the decision was issued.3
Recently, the U.S. Court of Appeals for the Second Circuit adopted the Seventh Circuit’s reasoning in Penrod when presented with a similar set of facts in In re Northern New England Telephone Operations.4 This decision is discussed in detail below, along with an overview of the relevant Bankruptcy Code provisions and our thoughts on best practices for secured lenders in light of these decisions.
Relevant Provisions
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