Alerts

Bankruptcy Court Allows Secured Lender To Credit Bid Despite Creditors' Committee Suit

December 5, 2006

A Delaware bankruptcy court held on November 16 that a secured lender with a $128 million claim could credit bid at a judicial sale of a chapter 11 debtor's assets, after dismissing the expansive complaint filed against the lender by the creditors' committee in the debtor's case (claims for recharacterization of debt as equity; equitable subordination; breach of fiduciary duty; invalid loans; voidable liens; and preference liability). Creditors' Committee of Radnor Holdings Corp. v. Tennenbaum Capital Partners, LLC, et al. (In re Radnor Holdings Corp.), 2006 WL 3346191 (Bankr. D. Del. 11/16/06). In his 42-page no-nonsense opinion, that relied heavily on the Third Circuit's January 6, 2006 decision in Cohen v. KB Mezzanine Fund II, L.P. (In re SubMicron Systems Corp.), 432 F.3d 448 (3d Cir. 2006) (held, creditor's debt recharacterization and equitable subordination claims against lender failed because documents were debt instruments and because creditors had not been injured) (opinion discussed in SRZ Alert Second Lien Lenders Fend Off Attack on Credit Bid), Bankruptcy Judge Peter J. Walsh provided a road map that should sharply curtail the extortionate demands too often made by creditors in large reorganization cases.