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Bankruptcy Court Cannot Surcharge Credit Bidding Asset Buyer with Expenses of Sale

By ALM Staff | Law Journal Newsletters |

The U.S. Court of Appeals for the Fifth Circuit held on March 25, 2009, that a bankruptcy court had improperly surcharged property in the hands of a credit bidding asset buyer with the expenses of the judicial sale. In re Skuna River Lumber, LLC, __F.3d ___, 2009 U.S. App. LEXIS 6175 (5th Cir. 3/25/09). Explaining that the “bankruptcy court had no jurisdiction to take such action,” the Fifth Circuit also vacated the district's court's improper ruling that the bankruptcy judge could enter a personal judgment against the asset buyer. Id. at *9.

The ruling is of critical importance not only to transactional and lenders' counsel, but also to financial advisers who seek to be paid from sale proceeds. Indeed, because of the current financial downturn, secured lenders are frequently credit bidding to start the asset sale process, and often end up owning their collateral. Credit bidding has thus become a routine tactic for lenders.

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