Struggling businesses frequently end up in bankruptcy court, and many corporate debtors propose Chapter 11 reorganization plans seeking to strategically sell the company’s assets. When a class of creditors objects to the proposed terms of sale, the bankruptcy court can “cram down” a plan on the debtor’s behalf as long as the plan (1) does not unfairly discriminate against any impaired creditor class; and is (2) “fair and equitable.” Recently, debtors have begun proposing cram down plans that sell substantially all of the company’s assets free and clear of liens pursuant to 11 U.S.C. § 1129(b)(2)(A)(3). Debtors argue that these plans are fair and equitable notwithstanding a key provision in the plan denying secured lenders the opportunity to credit bid at auction. Conducting the asset sale without permitting credit bidding, debtors contend, provides lenders with the “indubitable equivalent” of their secured claims pursuant to § 1129(b)(2)(A)(3).
A unanimous Supreme Court disagreed with the debtors’ reading of § 1129(b)(2)(A)(3) in RadLAX Gateway Hotel, LLC v. Amalgamated Bank. Justice Scalia held that cram down plans which contemplate the sale of encumbered assets free and clear of liens must afford secured lenders the opportunity to credit bid at auction. The Court focused on the specific versus general canon of statutory construction in its analysis. The opinion concluded that the “indubitable equivalent” clause in § 1129(b)(2)(A)(3) is a residual provision that may be used only when Subsections (i) and (ii) do not apply to a particular reorganization plan.
This Note applauds the result reached by the RadLAX Court, but argues that attempting to decipher a “correct” canon of statutory construction distracts from a more principled discourse regarding policy considerations underlying Congress’s intent. Judges can reach whatever policy decision they personally favor by artfully applying any canon of construction that fits their particular viewpoint. This Note describes many of the policy considerations supporting secured lenders’ right to credit bid at Chapter 11 asset sales, and it ultimately concludes by praising RadLAX as an important victory for secured lenders.