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Credit Bid Buyers Beware: Delaware Bankruptcy Court Caps Credit Bid
On Jan. 10, 2014, the United States Bankruptcy Court for the District of Delaware (the bankruptcy court) in In re Fisker Automotive Holdings, Inc., et al., capped a secured creditor's right to credit bid its $168 million claim at only $25 million (the amount it paid to purchase the claim). The secured creditor immediately appealed to the district court. As a procedural matter, the secured creditor had an absolute right to have its appeal heard only if the bankruptcy court's ruling was considered a “final order.” If it was not a “final order,” then the district court had discretion to hear the merits of the appeal. On Feb. 7, 2014, the district court determined that the bankruptcy court order was not final, and declined to hear the appeal. In doing so, however, the district court made sweeping statements regarding the bankruptcy court's authority to limit or otherwise deny a secured creditor the right to credit bid. Eleven days later, the bankruptcy court approved the sale of the debtors' assets to a third party. The secured creditor has since consented to the sale and withdrawn its appeal.
While the bankruptcy court has stated that its decision is non-precedential, it serves as a cautionary tale for secured lenders who may want to credit bid to acquire a debtor's assets.
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