Two recent bankruptcy court decisions have increased uncertainty over the right of secured creditors to credit bid in sales of debtors’ assets. Relying on and expanding a rarely used “for cause” limitation on a secured creditor’s right to credit bid under §363(k) of the Bankruptcy Code, these decisions may ultimately affect credit bidding rights in a broad swath of cases.
Whereas courts have historically found “cause” to limit credit bidding in the limited circumstances where there is a bona fide dispute regarding the extent or validity of a secured claim or egregious conduct on the part of a secured creditor, recent decisions in Fisker Automotive Holdings1 and Free Lance-Star Publishing2 have suggested that merely the furtherance of general bankruptcy goals, such as the desire to foster a competitive bidding environment, might constitute “cause” sufficient to limit credit bidding rights.
