On April 14, in In re Free Lance-Star Publishing, 512 B.R. 798 (Bankr. E.D. Va. 2014), the U.S. Bankruptcy Court for the Eastern District of Virginia considered the objection of Chapter 11 debtors to a secured creditor’s right to credit bid at a sale of the debtors’ assets pursuant to 11 U.S.C. Section 363. The court concluded that the secured creditor—which sought to acquire the debtors rather than collect on the loan—had engaged in inequitable conduct with the intention of depressing the value of the debtors’ assets for its own benefit as a buyer, rather than enhance value for the benefit of all creditors. Consequently, the court held that cause existed to limit the secured creditor’s right to credit bid at the Section 363 sale.
Facts
The joint debtors in Free Lance-Star, Free Lance-Star Publishing Co. and William Douglas Properties LLC, were related entities that owned and operated printing and newspaper businesses and four radio stations. In 2006, they borrowed approximately $50 million, secured by certain real and personal property, to expand their commercial printing business and to construct a new, state-of-the-art printing facility. The collateral for the loan did not include liens on what the parties dubbed the “tower assets”: three parcels of real estate and certain improvements and equipment therein used predominantly for the debtors’ radio broadcasting operations, together with certain licenses, contracts and other related assets. Unfortunately, the most recent recession had an impact on the debtors’ operations, and it resulted in the debtors falling behind on their debt service. After the debtors’ several unsuccessful attempts to obtain refinancing, their secured loan was sold by the original lender to DSP Acquisition LLC.
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