Alerts

Bankruptcy Appeals Court Limits Lien-Stripping in § 363(B) Asset Sale

August 18, 2008

The Ninth Circuit’s Bankruptcy Appellate Panel (the “BAP”) held on July 18, 2008, that the Bankruptcy Code (“Code”) did not authorize a bankruptcy court’s approving the sale of a debtor’s property free and clear of a junior lien outside the reorganization plan context. In re PW, LLC __ B.R. __, 2008 WL 2840659 (B.A.P. 9th Cir. July 18, 2008). It directed the bankruptcy court to ascertain on remand whether state law permitted a court to compel the junior lienholder to release its lien in exchange for payment of less than the face value of its claim. Id., at *13-*16. The BAP also held that [the] junior creditor’s appeal of the lien-stripping provision in a court-approved asset sale order was not moot, for the court could still grant effective relief without prejudicing any party. Id., at *3-*5. Moreover, it reasoned, the court could “hold that [the junior lien] remains attached to the property transferred …” Id., at *5.