On May 29, the U.S. Supreme Court issued a unanimous decision holding that a debtor cannot obtain confirmation of a Chapter 11 “cramdown” plan that provides for the sale of collateral free and clear of a secured creditor’s lien without permitting the lienholder to credit bid at the sale. See RadLAX Gateway Hotel v. Amalgamated Bank , 2012 U.S. LEXIS 3944 (U.S. May 29, 2012). In issuing this important ruling, the Supreme Court resolved a circuit split that had developed among the Third, Fifth and Seventh circuits over whether a secured creditor has an absolute right to credit bid when its collateral is being sold through a Chapter 11 plan.

The U.S. Courts of Appeals for the Third and Fifth circuits, in In re Philadelphia Newspapers , 599 F.3d 298 (3d Cir. 2010), and Bank of N.Y. Trust v. Official Unsecured Creditors’ Committee ( In re Pac. Lumber ), 584 F.3d 229 (5th Cir. 2009), respectively, held that a Chapter 11 plan could deny an objecting class of secured creditors the right to credit bid so long as the plan provided the secured creditor with the “indubitable equivalent” of its secured claim. Conversely, the Seventh Circuit ruled in In re River Road Hotel Partners , 651 F.3d 642 (7th Cir. 2011), that a plan under which the secured creditor’s collateral was to be sold could not provide the creditor the “indubitable equivalent” of its claim without allowing credit bidding by the secured creditor. In departing from the earlier decisions of the Third and Fifth circuits, the River Road decision created a circuit split on this issue.

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