In a 8-0 decision resolving a split between the Third and Seventh Circuit Courts of Appeals, the United States Supreme Court recently affirmed a secured creditor’s right to credit bid in a sale of its collateral pursuant to a cramdown plan. In RadLAX Gateway Hotel, LLC v. Amalgamated Bank, [1] the Supreme Court upheld the Seventh Circuit’s ruling that section 1129(b)(2)(A)(iii) of the Bankruptcy Code, the so-called “indubitable equivalent prong” of the cramdown requirements for secured creditors, could not be used to justify confirming a plan which sold secured lenders’ collateral without allowing the lenders to credit bid.

The Court, in an opinion written by Justice Scalia, held that the canons of statutory construction did not permit the general “indubitable equivalent” option for cramdown of secured creditors to override the more specific option set forth in clause (ii) of section 1129(b)(2)(A). That cramdown option provides that a secured creditor can be crammed down if its collateral is sold, “subject to section 363(k),” and its security interest attaches to the proceeds of the sale. Section 363(k) allows a secured creditor to credit bid in a sale unless the court, for cause shown, rules otherwise. The Court would not permit confirmation of a plan that contemplated a sale of collateral free and clear of a security interest where the holder of that security interest could not credit bid.

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