Bankruptcy: to finance the purchase of a commercial property and associated renovation and construction costs, petitioners (debtors) obtained a secured loan from an investment fund, for which respondent (Bank) serves as trustee. The debtors ultimately became insolvent, and sought relief under Chapter 11 of the Bankruptcy Code. Pursuant to 11 U. S. C. §1129(b)(2)(A), the debtors sought to confirm a “cramdown” bankruptcy plan over the Bank’s objection. That plan proposed selling substantially all of the debtors’ property at an auction, and using the sale proceeds to repay the Bank. Under the debtors’ proposed auction procedures, the Bank would not be permitted to bid for the property using the debt it is owed to offset the purchase price, a practice known as “credit-bidding.” The Bankruptcy Court denied the debtors’ request, concluding that the auction procedures did not comply with §1129(b)(2)(A)’s requirements for cramdown plans. The Seventh Circuit affirmed, holding that §1129(b)(2)(A) does not permit debtors to sell an encumbered asset free and clear of a lien without permitting the lien holder to credit-bid.
Held: The debtors may not obtain confirmation of a Chapter 11 cramdown plan that provides for the sale of collateral free and clear of the Bank’s lien, but does not permit the Bank to credit-bid at the sale. A Chapter 11 plan proposed over the objection of a “class of secured claims” must meet one of three requirements in order to be deemed “fair and equitable,” and therefore confirmable. The secured creditor may retain its lien on the property and receive deferred cash payments, §1129(b)(2)(A)(i); the debtors may sell the property free and clear of the lien, “subject to section 363(k)”—which permits the creditor to credit-bid at the sale—and provide the creditor with a lien on the sale proceeds, §1129(b)(2)(A)(ii); or the plan may provide the secured creditor with the “indubitable equivalent” of its claim, §1129(b)(2)(A)(iii) (U.S. S. Ct., 29.05.12, RadLAX Gateway Hotel, LLC v. Amalgamated Bank, J. Scalia).