Friedman Kaplan Attorneys Publish Article on Third Circuit Decision Rejecting Credit-Bidding

The Norton Journal of Bankruptcy Law and Practice recently published an article by attorneys in Friedman Kaplan's Financial Restructuring & Insolvency Group analyzing the recent decision of the Third Circuit Court of Appeals in In re Philadelphia Newspapers, LLC rejecting the right of a secured lender to "credit bid" its claim in a chapter 11 debtor's sale of the lender's collateral as part of a plan of reorganization. In the article, titled Third Circuit Bids Credit Bidding Adieu, Friedman Kaplan partner William P. Weintraub and associates Gregory W. Fox and Kizzy L. Jarashow express the view that the decision is inconsistent with provisions of the Bankruptcy Reform Act of 1978 that were designed to prevent lien stripping. Specifically, the authors question whether the court's ruling is contrary to Bankruptcy Code section 363(k), which grants a secured creditor the absolute right to credit bid its debt when a sale of its collateral occurs outside of the context of a plan of reorganization, as well as to the purposes underlying section 1111(b)(2)'s election provision and the conventional wisdom that a secured creditor's right to credit bid is preserved under section 1129(b)(2)(A)(ii) when a sale of its collateral occurs pursuant to a plan of reorganization. The authors also discuss the potential impact of the Philadelphia Newspapers decision on secured lenders and debtors, especially as to how, and when, Bankruptcy Court sales will occur.