While Chrysler and GM have made headlines for months, judges in other cases have been handing down opinions of significant import for secured and unsecured creditors. The three described below are particularly noteworthy.
Last Thursday, the judge overseeing the Philadelphia Newspapers cases handed secured creditors a major victory, upholding their right to credit bid. The Debtors are running an auction process to sell substantially all of their assets pursuant to a plan of reorganization (rather than a section 363 sale), and have expressed the desire to sell to a group of "community based investors" rather than to their "out of town hedge fund" secured lenders.
The Debtors attempted to preclude the lenders from submitting a credit bid, arguing that section 363(k) of the Bankruptcy Code authorizes secured creditors to credit bid only at a section 363 sale -- and does not require that they be permitted to credit bid at a sale under a plan. The lenders objected, arguing that secured creditors are entitled to credit bid at any sale of their collateral, whether conducted under section 363 or a plan.
The court ruled that "the intent of the integrated provisions of the Bankruptcy Code (sections 363, 1111, 1123, and 1129) is to ensure that where an undersecured creditor's collateral is proposed to be sold, whether under section 363 or under a plan, the secured creditor is entitled in all events to protect its rights in its collateral, either by making an election under section 1111(b) or by credit bidding its debt."
Another important victory for secured creditors was handed down in the Journal Register case, where the court confronted the "hot topic" of the rights of secured creditors to "gift" part of their distributions to other creditor classes in ways that some argue are not consistent with the Bankruptcy Code. Davis Polk attorneys recently published an article in the ABI Journal -- SPM Manufacturing to Journal Register: Indicators of a Successful "Gift Plan" -- tracing the ongoing development of the "SPM Gift Plan" doctrine and this important new case.
Finally, creditors had a less successful outcome in the General Growth bankruptcy case. Another article we wrote for this month's ABI Journal, entitled "Not So Bankruptcy-Remote SPEs and In re General Growth Properties Inc." examines the judicial decision that upheld the chapter 11 filings of well-capitalized and solvent "special purpose entities" over the objection of certain lenders.
To access the opinion and copies of the articles, please click on the links below.