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Keywords

appealbankruptcychapter 11 bankruptcyliens

appealwillbankruptcyliens

Related Cases

In re Philadelphia Newspapers, LLC, 599 F.3d 298, 52 Bankr.Ct.Dec. 255, Bankr. L. Rep. P 81,719

Facts

Philadelphia Newspapers, LLC, which owns the Philadelphia Inquirer and Philadelphia Daily News, filed for Chapter 11 bankruptcy after defaulting on a loan secured by their assets. The debtors proposed a reorganization plan that included selling their assets free of liens, which would generate cash for the secured lenders. The debtors sought to prevent the lenders from credit bidding at the auction, arguing that the sale was conducted under a different section of the Bankruptcy Code that did not allow for credit bidding. The Bankruptcy Court initially ruled against the debtors, but the District Court later reversed this decision, leading to the appeal.

The Debtors acquired these assets in July 2006 for $515 million as part of an acquisition of the businesses by an investor group led by Philadelphia PR executive, Brian Tierney.

Issue

Does Section 1129(b)(2)(A) of the Bankruptcy Code require that a debtor proposing a sale of assets free of liens must allow secured creditors to credit bid at the auction?

We are asked in this appeal to decide whether Section 1129(b)(2)(A) of the Bankruptcy Code requires that any debtor who proposes, as part of its plan of reorganization, a sale of assets free of liens must allow creditors whose loans are secured by those assets to bid their credit at the auction.

Rule

The court held that the 'indubitable equivalent' provision in Section 1129(b)(2)(A) allows debtors to satisfy secured lenders' claims without granting them the right to credit bid, as the provision does not explicitly include such a right.

Because subsection (iii) of Section 1129(b)(2)(A) unambiguously permits a debtor to proceed with any plan that provides secured lenders with the 'indubitable equivalent' of their secured interest in the assets and contains no statutory right to credit bidding, we will affirm the District Court's approval of the proposed bid procedures.

Analysis

The court analyzed the language of Section 1129(b)(2)(A) and determined that the three subsections provide alternative means for a debtor to confirm a reorganization plan. The court concluded that since the 'indubitable equivalent' provision does not mention credit bidding, the debtors were not required to allow it in their proposed sale. The court emphasized that the focus should be on whether the secured lenders receive the equivalent value of their claims, rather than the method of sale.

The court reasoned that these three routes were independent prongs, separated by the disjunctive 'or,' and therefore each was sufficient for confirmation of a plan as 'fair and equitable' under the Code.

Conclusion

The Court of Appeals affirmed the District Court's decision, allowing the debtors to proceed with their plan to sell assets free of liens without permitting secured lenders to credit bid.

We will affirm the District Court.

Who won?

The debtors prevailed in the case because the court upheld their right to sell assets free of liens without allowing secured lenders to credit bid, interpreting the Bankruptcy Code in a manner that favored the debtors' reorganization efforts.

The District Court pointed out that this broad language served as an 'invitation to debtors to craft an appropriate treatment of a secured creditor's claim, separate and apart from the provisions of subsection (ii).'

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Keywords

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