Credit Bidding in the Spotlight Once Again | Practical Law

Credit Bidding in the Spotlight Once Again | Practical Law

A discussion of an emerging trend by some bankruptcy courts to expand the "for cause" exception to limit credit bidding rights under section 363(k) of the Bankruptcy Code in the interest of promoting a competitive bidding environment.

Credit Bidding in the Spotlight Once Again

Practical Law Legal Update 8-571-8945 (Approx. 3 pages)

Credit Bidding in the Spotlight Once Again

by Practical Law Bankruptcy & Restructuring and Practical Law Finance
Published on 19 Jun 2014USA (National/Federal)
A discussion of an emerging trend by some bankruptcy courts to expand the "for cause" exception to limit credit bidding rights under section 363(k) of the Bankruptcy Code in the interest of promoting a competitive bidding environment.
A new credit bidding controversy has recently emerged, illustrated by the recent In re Fisker Automotive Holdings, Inc. and In re Free Lance-Star Publishing Co. of Fredericksburg, Va decisions. Both cases suggest that the desire to foster and promote a competitive sales process may be sufficient "cause" to limit rights to credit bid under section 363(k) of the Bankruptcy Code. Because the Bankruptcy Code does not define what constitutes "cause" for this purpose, some courts may broaden the exception to promote this policy to the detriment of secured creditors, who have long relied on credit bidding rights to protect against an undervaluation of their collateral. However, it is unclear whether this policy objective alone is sufficient cause to deny or limit credit bidding rights. For further discussion and steps that secured creditors can take to protect their credit bidding rights from this new potential threat, see Article, Credit Bidding in the Spotlight Once Again.