RADLAX GATEWAY HOTEL, LLC V. AMALGAMATED BANK : CASE SUMMARY
The Supreme Court held in RadLAX Gateway Hotel, LLC v. Amalgamated Bank566 U.S. 639 (2012) that Chapter 11 cramdown plan that proposes to sell collateral free and clear of a secured creditor’s lien cannot be confirmed unless the secured creditor is permitted to credit-bid, unless the court finds cause to deny that right under the Bankruptcy Code.
FACTS OF THE CASE
RadLAX Gateway Hotel, LLC and related entities borrowed approximately $142 million to acquire and renovate a hotel near Los Angeles International Airport and construct a parking facility. The loan was secured by substantially all of the debtors’ assets. After financial difficulties and cost overruns, the debtors filed for Chapter 11 bankruptcy. They proposed a reorganization plan that would sell the collateral at auction and use the proceeds to repay the secured lender, represented by Amalgamated Bank. However, the plan prohibited the bank from credit-bidding using the amount of its secured debt as currency at the auction.
ISSUE BEFORE THE SUPREME COURT
The key issue before the Supreme Court was whether a Chapter 11 debtor can confirm a cramdown plan that sells collateral free and clear of a secured creditor’s lien while denying the secured creditor the right to credit-bid at the sale.
FINDINGS OF THE SUPREME COURT
Section 1129(b)(2)(A) of the Bankruptcy Code provides three ways for a cramdown plan to be “fair and equitable” to secured creditors – (i) the creditor retains its lien and receives deferred payments. (ii) the collateral is sold free and clear of the lien, subject to §363(k), which grants the creditor a right to credit-bid. (iii) the creditor receives the “indubitable equivalent” of its claim.
The debtors argued that their plan fit within the third option because the lender would receive the “indubitable equivalent” of its claim through sale proceeds. The Court rejected this argument, applying the principle that a specific statutory provision governs over a more general one. Since clause (ii) specifically governs sales of collateral free and clear of liens and expressly incorporates the credit-bidding right, debtors could not bypass that requirement by relying on the broader “indubitable equivalent” provision in clause (iii).
The Supreme Court laid down the principle that when a Chapter 11 plan proposes the sale of encumbered assets free and clear of liens under a cramdown plan, the secured creditor’s right to credit-bid is a critical protection and generally cannot be eliminated. The specific requirements of §1129(b)(2)(A)(ii) control over the more general “indubitable equivalent” provision of §1129(b)(2)(A)(iii).
SIGNIFICANCE OF THE JUDGMENT
The decision of the Supreme Court in RadLAX Gateway Hotel, LLC v. Amalgamated – (i) strengthened protections for secured creditors in Chapter 11 cases, (ii) resolved a circuit split regarding the scope of credit-bidding rights, (iii) reinforced the Supreme Court’s textual approach to interpreting the Bankruptcy Code.
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Mukesh Suman is a lawyer and legal author based at Delhi, India. He has extensive experience in insolvency and bankruptcy matters. He also provides legal support services to USA based bankruptcy lawyers. Mukesh can be approached at mukesh_suman@outlook.com or +91 9717864570.
