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BANKRUPTCY & COMMERCIAL LAW FEATURE

allows a creditor “to purchase the collateral In the wake of Fisker, many practitioners solely to foster competitive bidding. Among
for what it considers the fair market price (up and commentators speculated that the ruling the most comforting of cases for buyers
to the amount of its security interest) without marked a possible expansion of section hoping to acquire a target’s assets through
committing additional cash to protect the loan.” 363(k)’s “for cause” exception. Five years later, credit bidding is In re Aéropostale, Inc.,
RadLAX Gateway Hotel, LLC v. Amalgamated however, it appears that those fears may have 555 B.R. 369 (Bankr. S.D.N.Y. 2016), which
Bank, 566 U.S. 639, 644 n.2 (2012). This protects been overblown. affirms the viability of credit bidding in
against the undervaluation of the secured claim at the face of arguments solely focused on bid
the sale. In re The Free Lance-Star Publ’g Co., 512 Fisker’s Impact: Five Years Later chilling. In Aéropostale, the court explained
B.R. 798, 804 (Bankr. E.D. Va. 2014). In the five years since Fisker was decided, that rulings limiting credit bidding because
no reported decision has cited the opinion of bid chilling “almost invariably also
Fisker to limit a secured lender’s right to credit bid feature some other factor that supports
The transaction leading to the attention-
grabbing ruling in Fisker was the prepetition
purchase of secured debt with an outstanding Bruce Hennes has been
principal amount of $168.5 million by Hybrid
Tech Holdings, LLC (Hybrid) for only $25 chosen as a Lawdragon 100
million. Fisker, 510 B.R. at 57. After the debtor
filed for chapter 11 protection, Hybrid offered Leading Legal Consultant &
to purchase substantially all of the debtor’s Strategist for 2019
assets at a private sale, by credit bidding $75
million of its secured claim. Id. The Official
Committee of Unsecured Creditors, however, Selected for excellence & leadership
objected to the private sale and filed its own to the legal profession.
motion to sell the debtor’s assets at auction.
Id. at 56. In connection with the dispute, the
parties stipulated that: (1) if the court limited
Hybrid’s ability to credit bid to $25 million or Celebrating 30 years in
less, the auction could create material value business, Bruce has grown
for the estate over and above Hybrid’s bid; and Hennes Communications into
(2) if the court did not limit Hybrid’s ability to one of the few firms in North
credit bid, the sale to Hybrid likely provided America focused exclusively
the most value, and as a result, the committee on crisis management, crisis
would withdraw its objection. Id. at 57–58.
While the court determined that Hybrid communications and litigation
had a right to credit bid, it questioned whether communications consulting.
that right should be limited pursuant to section
363(k). Id. at 59. Reasoning that allowing If you have a situation,
Hybrid to credit bid the entire debt amount Hennes Communications
would foreclose all bidding, including a bid has a strategy.
from a known “attractive” potential buyer,
the court held that Hybrid’s right to credit bid
should be limited. “[T]he ‘for cause’ basis upon
which the Court is limiting Hybrid’s credit bid
is that bidding will not only be chilled without
the cap; bidding will be frozen.” Id. at 60.
Despite that conclusion, the court continued
its examination, finding multiple other
justifications for modifying Hybrid’s right
to credit bid, including: (a) the troublingly
expedited schedule for the sale; (b) the court’s
conclusion that, due to the damage the debtor’s
collapse caused to individuals, companies, and Terminal Tower | 50 Public Square, Suite 3200 | Cleveland, Ohio 44113
taxpayers, Hybrid should not be permitted to 388 S. Main St. | Suite 400 | Akron, Ohio 44311
“short-circuit” the bankruptcy process; and (c) www.crisiscommunications.com 216-321-7774
the extent to which Hybrid’s claim was secured Lawdragon is a legal media company that has grown a national reputation for recognizing the industry’s
was unclear. Id. at 60–61. leading lawyers and leading providers of strategic and leadership advice.

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