In what Justice Scalia termed “an easy case,” the United States Supreme Court has ruled 8-0 that a debtor cannot strip a secured creditor’s right to credit bid under 11 U.S.C. § 1129(b)(2)(A)(ii). RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank, NO. 11-166. The Court granted certiorari in this case to resolve a split in the circuits between the Seventh Circuit, on one hand, and the Third and Fifth Circuits, on the other, as to the ability of a debtor to prevent a secured creditor from credit bidding at a sale pursuant to a plan of reorganization. Under clause (i) of 11 U.S.C. § 1129(b)(2)(A), the secured lender retains its lien on its collateral and receives deferred cash payments. Clause (ii) provides for the sale of the collateral free and clear of a security interest so long as the secured creditor can credit bid at the sale. Clause (iii), on the other hand, provides for confirmation so long as the secured creditor receives the “indubitable equivalent.”
The Seventh Circuit had held that a debtor could not use clause (iii) to avoid the credit bidding requirements found in clause (ii). In RadLAX, the debtor sought to confirm its plan through a sale to an insider group for an amount substantially below the secured lender’s debt. RadLAX Gateway Hotel, LLC, et al. v. Amalgamated Bank, 651 F.3d 642 (7th Cir.