In earlier posts, we discussed rulings by two bankruptcy courts, one in Delaware and one in Virginia, in which the potential chilling effect of secured creditor credit bidding at a Bankruptcy Code § 363 asset sale was determined to be sufficient to support a “for cause” limitation on the secured creditor’s credit bid right. A bankruptcy court in Tennessee has now weighed in on this important, and contentious, issue.
In a memorandum opinion dated July 10, 2014, in the chapter 11 case In re RML Development, Inc., dba Pinetree Place Apartments dba Raintree Apartments, Case No. 13-29244, the United States Bankruptcy Court for the Western District of Tennessee analyzed the secured creditor’s credit bid rights under Bankruptcy Code § 363(k). While agreeing with the referenced Delaware and Virginia bankruptcy court rulings that there is no absolute right to credit bid, the Western District of Tennessee bankruptcy court expressly departed from those rulings when it came to the question of what constitutes “cause” to modify or deny the credit bid right:
[T]his court is not prepared to go as far as some of these courts and hold that the mere “chilling” of third party bids is sufficient cause to justify modifying or denying a secured creditor’s rights. The modification or denial of credit bid rights for cause under § 363(k) should be an extraordinary exception that is used only upon equitable considerations (e.g., competing claims, collusion, or other fraudulent or bad faith acts). This court is convinced that, where a creditor holds an uncontested secured claim, it should ordinarily be permitted to bid at a § 363 sale of its collateral regardless of its intrinsic impact on other bidding. Id., FN 11
This is a welcome ruling for secured creditors and, from their perspective, will hopefully slow or reverse the apparent momentum toward a more relaxed “for cause” standard generated by the earlier Delaware and Virginia rulings.