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Chilling Bidding as a Limit on Credit Bidding: The Pockmarked Path from Philadelphia Newspapers to RadLAX to Fisker and Lance-Star

Congress passed the operative texts without noticeable fanfare. From its enactment to today, section 363(k) has entitled a secured creditor to “credit bid” the full amount of the debt owed by a debtor in any sale of the underlying collateral pursuant to section 363(b). That this statutory bequest elicited little debate made imminent sense, for Congress had thereby codified one of secured creditors’ seemingly time-honored rights. The same lack of discernible rancor greeted the addition of language empowering a bankruptcy court to restrict this prerogative “for cause” effectuated by the Bankruptcy Amendments and Federal Judgeship Act of 1984. After all, “cause” and other protean standards characterized pre-Bankruptcy Code law and populated the Bankruptcy Code itself.  

Disrupting this stasis, the Supreme Court’s 2012 decision in RadLAX Gateway Hotel, LLC v. Amalgamated Bank launched a surprisingly spirited debate over the precise nature of section 363(k)’s “for cause” standard. In its wake, some courts and commentators came to favor a tempered denotation and thus a constricted construction of “cause”; some always had. The pre-Bankruptcy Code history of credit bidding, post-Bankruptcy Code practice, and various policy strands constitute the principal arguments of this view’s proponents. Then, in 2014, In re Free Lance-Star Publishing Co. of Fredericksburg, Va., 512 B.R. 798 (Bankr. E.D. Va. 2014), and In re Fisker Automotive Holdings, Inc., 510 B.R. 55 (Bankr. D. Del. 2014) acknowledged the possible viability of an arguably novel “cause”—the potential chilling effect on competitive bidding resulting from a particular secured creditor’s credit bid—and thereby rent this seeming unanimity. In the years since, this rupture has persisted.

Amir Shachmurove turned his eyes to this jumble of cases and concept in the April 2022 issue of the Norton Journal of Bankruptcy Law and Practice, an article now available at (and others on his main SSRN page).

“[The Supreme Court’s] analytical approach [in RadLax] exhibited at least one potential drawback. In particular, it generated a narrow opinion that rendered any granular analysis of [section] 363(k)’s ‘for cause’ lodestar irrelevant to its ratiocination. Consequently, Philadelphia Newspapers’ classification of ‘any policy advanced by the Code, such as to ensure the success of the reorganization or to foster a competitive bidding environment,’ as ‘cause,’ set forth in one sentence of footnoted dicta, survived unimpeached, as did its dismissal of the argument that only ‘inequitable conduct’ could be ‘cause’ under [section] 363(k).” “Within two years, the inevitable happened: Fisker and Lance-Star seized upon that footnoted aside from Philadelphia Newspapers.”


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