UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

The evolution of credit bidding : its recent journey and logical next step Wriley, Jennifer Lee 2013

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
24-ubc_2013_fall_wriley_jennifer.pdf [ 701.98kB ]
Metadata
JSON: 24-1.0073952.json
JSON-LD: 24-1.0073952-ld.json
RDF/XML (Pretty): 24-1.0073952-rdf.xml
RDF/JSON: 24-1.0073952-rdf.json
Turtle: 24-1.0073952-turtle.txt
N-Triples: 24-1.0073952-rdf-ntriples.txt
Original Record: 24-1.0073952-source.json
Full Text
24-1.0073952-fulltext.txt
Citation
24-1.0073952.ris

Full Text

	
   THE	
  EVOLUTION	
  OF	
  CREDIT	
  BIDDING:	
  	
   ITS	
  RECENT	
  JOURNEY	
  AND	
  LOGICAL	
  NEXT	
  STEP	
   	
   by	
   	
   Jennifer	
  Lee	
  Wriley	
   LL.M.,	
  The	
  University	
  of	
  British	
  Columbia,	
  2007	
   J.D.,	
  The	
  University	
  of	
  British	
  Columbia,	
  2011	
   	
   	
   A	
  THESIS	
  SUMBITTED	
  IN	
  PARTIAL	
  FULFILLMENT	
  OF	
  THE	
  REQUIREMENTS	
  FOR	
   THE	
  DEGREE	
  OF	
   	
   MASTER	
  OF	
  LAWS	
   in	
   The	
  Faculty	
  of	
  Graduate	
  Studies	
   (Law)	
    	
    THE	
  UNIVERSITY	
  OF	
  BRITISH	
  COLUMBIA	
   (Vancouver)	
   July	
  2013	
   	
   ©	
  Jennifer	
  Lee	
  Wriley,	
  2013	
   	
    	
   	
    ABSTRACT	
   Credit	
  bidding	
  is	
  a	
  US	
  construct	
  that	
  enables	
  secured	
  creditors	
  to	
  use	
  their	
  secured	
   claims,	
   instead	
   of	
   having	
   to	
   raise	
   additional	
   capital,	
   to	
   bid	
   on	
   their	
   collateral	
   at	
   an	
   asset	
   sale.	
   	
   The	
   US	
   legislature	
   amended	
   the	
   bankruptcy	
   statutes	
   to	
   include	
   credit	
   bidding	
  specifically	
  to	
  prevent	
  the	
  undervaluation	
  of	
  collateral.	
  	
  Recent	
  US	
  case	
  law	
   has	
  re-­‐evaluated	
  when	
  secured	
  creditors	
  are	
  entitled	
  to	
  credit	
  bid	
  and	
  when	
  debtors	
   might	
   be	
   able	
   to	
   deny	
   this	
   right	
   through	
   the	
   use	
   of	
   a	
   loophole	
   subsection.	
   	
   This	
   subsection	
   allows	
   a	
   debtor	
   to	
   deny	
   secured	
   creditors	
   the	
   right	
   to	
   credit	
   bid	
   if	
   the	
   debtor	
  can	
  satisfy	
  their	
  claims	
  by	
  providing	
  an	
  “indubitable	
  equivalent.”	
  	
  While	
  the	
   US	
  Supreme	
  Court	
  ultimately	
  determined	
  that	
  the	
  indubitable	
  equivalent	
  subsection	
   cannot	
  be	
  used	
  to	
  deny	
  secured	
  creditors	
  the	
  right	
  to	
  credit	
  bid	
  at	
  an	
  asset	
  sale,	
  the	
   case	
   law	
   adeptly	
   highlights	
   the	
   merits	
   of	
   credit	
   bidding	
   while	
   demonstrating	
   the	
   dangers	
  of	
  specific	
  legislation.	
  	
  	
  	
   	
   Although	
   Canada	
   does	
   not	
   have	
   legislation	
   regarding	
   credit	
   bidding,	
   it	
   has	
   nonetheless	
   been	
   incorporated	
   into	
   Canadian	
   insolvency	
   proceedings	
   through	
   cross-­‐border	
  cases.	
  	
  This	
  thesis	
  discusses	
  both	
  the	
  benefits	
  and	
  issues	
  involved	
  with	
   credit	
   bidding	
   in	
   a	
   US	
   and	
   Canadian	
   context,	
   reviewing	
   relevant	
   case	
   law	
   and	
   legislation	
  in	
  both	
  jurisdictions.	
  	
  It	
  also	
  discusses	
  the	
  current	
  status	
  of	
  credit	
  bidding	
   in	
   Canada,	
   which,	
   without	
   specific	
   legislation	
   to	
   state	
   otherwise,	
   current	
   case	
   law	
   has	
   found	
   to	
   be	
   permissible	
   but	
   not	
   a	
   right.	
   	
   Consequently,	
   this	
   thesis	
   proposes	
   that	
   credit	
  bidding	
  should	
  be	
  added	
  to	
  Canadian	
  insolvency	
  legislation.	
  	
  	
  	
  	
  	
   	
    	
    ii	
    PREFACE	
   This	
  thesis	
  is	
  an	
  independent	
  work	
  designed	
  and	
  researched	
  by	
  the	
  author.	
  	
  	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
    	
    iii	
    TABLE	
  OF	
  CONTENTS	
   ABSTRACT	
  ....................................................................................................................................................	
  ii	
   PREFACE	
  ......................................................................................................................................................	
  iii	
   TABLE	
  OF	
  CONTENTS	
  ............................................................................................................................	
  iv	
   ACKNOWLEDGMENTS	
  ...........................................................................................................................	
  vi	
   DEDICATION	
  ..............................................................................................................................................	
  vii	
   CHAPTER	
  1:	
  INTRODUCTION	
  ..............................................................................................................	
  1	
   CHAPTER	
  2:	
  CREDIT	
  BIDDING	
  OUTSIDE	
  OF	
  BANKRUPTCY	
  ..................................................	
  5	
   2.1	
  Introduction	
  ....................................................................................................................................	
  5	
   2.2	
  Personal	
  Property	
  Security	
  Act	
  .................................................................................................	
  6	
   2.3	
  Uniform	
  Commercial	
  Code	
  ........................................................................................................	
  8	
   2.4	
  Summary	
  .........................................................................................................................................	
  10	
   CHAPTER	
  3:	
  US	
  LEGISLATION	
  –	
  CREDIT	
  BIDDING	
  IS	
  GIVEN	
  LEGISLATIVE	
  LIFE	
  ......	
  12	
   3.1	
  Introduction	
  ..................................................................................................................................	
  12	
   3.2	
  In	
  re	
  Pine	
  Gate	
  ...............................................................................................................................	
  12	
   3.3	
  A	
  New	
  Life	
  Form	
  Created	
  –	
  Credit	
  Bidding	
  Added	
  to	
  Legislation	
  ..........................	
  13	
   CHAPTER	
  4:	
  THE	
  US	
  CREDIT	
  BIDDING	
  CRISIS	
  –	
  EVOLVING	
  LAWS?	
  ................................	
  18	
   4.1	
  Introduction	
  ..................................................................................................................................	
  18	
   4.2	
  In	
  re	
  Pacific	
  Lumber	
  Co.	
  –	
  Mutation	
  Occurs	
  ......................................................................	
  20	
   4.3	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC	
  –	
  A	
  New	
  Species	
  of	
  Credit	
  Bidding?	
  ............	
  29	
   4.3.1	
  Background	
  ...........................................................................................................................	
  29	
   4.3.2	
  The	
  Majority	
  Opinion	
  ........................................................................................................	
  31	
   4.3.3	
  Dissent	
  .....................................................................................................................................	
  35	
   4.4	
  Reaction	
  to	
  the	
  Third	
  and	
  Fifth	
  Circuit	
  Decisions	
  .........................................................	
  39	
   4.5	
  River	
  Road	
  Hotel	
  Partners,	
  LLC	
  v.	
  Amalgamated	
  Bank	
  .................................................	
  41	
   4.6	
  The	
  United	
  States	
  Supreme	
  Court	
  Steps	
  into	
  the	
  Match	
  ............................................	
  45	
   CHAPTER	
  5:	
  CANADIAN	
  INSOLVENCY	
  LEGISLATION	
  ............................................................	
  48	
   CHAPTER	
  6:	
  CANADIAN	
  CASE	
  LAW	
  ................................................................................................	
  55	
   6.1	
  Introduction	
  ..................................................................................................................................	
  55	
   6.2	
  White	
  Birch	
  –	
  Quebec	
  Superior	
  Court	
  Decision	
  ..............................................................	
  56	
   6.2.1	
  Background	
  ...........................................................................................................................	
  56	
   6.2.2	
  SAI’s	
  Arguments	
  Against	
  BD	
  White	
  Birch’s	
  Credit	
  Bid	
  .......................................	
  59	
   6.2.3	
  BD	
  White	
  Birch	
  Pushes	
  Back	
  .........................................................................................	
  60	
   6.2.4	
  The	
  Court’s	
  Opinion	
  ...........................................................................................................	
  61	
   6.3	
  White	
  Birch	
  –	
  Quebec	
  Court	
  of	
  Appeal	
  Decision	
  ............................................................	
  66	
   6.4	
  Credit	
  Bidding	
  After	
  White	
  Birch	
  and	
  Beyond	
  the	
  CCAA	
  ............................................	
  67	
   CHAPTER	
  7:	
  TIME	
  TO	
  ADAPT?	
  ..........................................................................................................	
  70	
   7.1	
  Introduction	
  ..................................................................................................................................	
  70	
   7.2	
  Embedding	
  Credit	
  Bidding	
  in	
  Canadian	
  Insolvency	
  Legislation	
  .............................	
  75	
   7.3	
  Purposes	
  of	
  Canadian	
  and	
  US	
  Bankruptcy	
  Legislation	
  ...............................................	
  78	
   7.4	
  Arguments	
  Against	
  Credit	
  Bidding	
  ......................................................................................	
  84	
   7.4.1	
  Chilling	
  ....................................................................................................................................	
  85	
   7.4.2	
  Majority	
  Lenders	
  vs.	
  Minority	
  Lenders	
  .....................................................................	
  88	
   7.4.3	
  Valuation	
  of	
  Credit	
  Bids	
  ...................................................................................................	
  90	
   7.4.4	
  Secured	
  Creditors	
  and	
  the	
  Integrity	
  of	
  the	
  Sale	
  Process	
  ...................................	
  93	
   	
    iv	
    7.5	
  Legislation	
  as	
  a	
  Tool?	
  ................................................................................................................	
  94	
   7.6	
  Proposed	
  Amendments	
  to	
  the	
  BIA	
  and	
  the	
  CCAA	
  ..........................................................	
  98	
   CHAPTER	
  8:	
  CONCLUSION	
  ...............................................................................................................	
  101	
   BIBLIOGRAPHY	
  .....................................................................................................................................	
  103	
   Legislation	
  ..........................................................................................................................................	
  103	
   Jurisprudence	
  ....................................................................................................................................	
  104	
   Secondary	
  Materials	
  .......................................................................................................................	
  108	
   Government	
  Reports	
  ......................................................................................................................	
  110	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
    v	
    ACKNOWLEDGMENTS	
   I	
   would	
   like	
   to	
   express	
   my	
   utmost	
   gratitude	
   to	
   my	
   supervisor,	
   Professor	
   Bruce	
   MacDougall	
   for	
   his	
   continuous	
   support	
   and	
   feedback.	
   	
   This	
   project	
   would	
   have	
   been	
   immensely	
   more	
   difficult	
   had	
   it	
   not	
   been	
   for	
   his	
   invaluable	
   insight	
   and	
   positive	
   reassurances.	
   	
   I	
   am	
   particularly	
   grateful	
   to	
   Dr.	
   Janis	
   Sarra,	
   for	
   her	
   wisdom	
   and	
   guidance.	
   	
   Her	
   comments	
   and	
   assistance	
   provided	
   a	
   deeper	
   understanding	
   of	
   the	
   subject	
  matter.	
  	
  	
  	
   	
   I	
  would	
  also	
  like	
  to	
  thank	
  my	
  family	
  for	
  their	
  endless	
  patience	
  and	
  support.	
  	
  Their	
   encouragement	
  has	
  proved	
  to	
  be	
  a	
  light	
  in	
  the	
  dark,	
  especially	
  during	
  late	
  nights	
  of	
   editing	
  and	
  re-­‐editing.	
  	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
    vi	
    DEDICATION	
   To	
  my	
  parents,	
  who	
  never	
  stopped	
  believing	
  in	
  me	
  even	
  when	
  I	
  did.	
  	
  	
  	
  	
  	
    	
    vii	
    CHAPTER	
  1:	
  INTRODUCTION	
   According	
  to	
  Darwin’s	
  Origin	
  of	
  Species,	
  it	
  is	
  not	
  the	
  most	
  intellectual	
  of	
   the	
   species	
   that	
   survives,	
   it	
   is	
   not	
   the	
   strongest	
   that	
   survives;	
   but	
   the	
   species	
  that	
  survives	
  is	
  the	
  one	
  that	
  is	
  able	
  best	
  to	
  adapt	
  and	
  adjust	
  to	
   the	
  changing	
  environment	
  in	
  which	
  it	
  finds	
  itself.1	
   	
   The	
  ability	
  to	
  adapt	
  and	
  evolve	
  with	
  the	
  times	
  is	
  an	
  integral	
  requirement	
  for	
  every	
   government.	
   	
   The	
   present	
   era	
   is	
   filled	
   with	
   international	
   trade,	
   an	
   ever-­‐expanding	
   network	
  of	
  international	
  businesses,	
  and	
  the	
  growing	
  realization	
  that	
  countries	
  are	
   all	
   inter-­‐dependent.	
   	
   Foreign	
   direct	
   investment	
   stocks	
   in	
   Canada	
   alone	
   have	
   increased	
   from	
   CND$340	
   billion	
   in	
   2001	
   to	
   over	
   $599	
   billion	
   in	
   2011.2	
  	
   As	
   more	
   companies	
  are	
  operating	
  across	
  international	
  borders,	
  it	
  is	
  to	
  be	
  expected	
  that	
  there	
   would	
   also	
   be	
   an	
   increase	
   in	
   the	
   number	
   of	
   cross-­‐border	
   insolvency	
   proceedings.3	
  	
   In	
   response	
   to	
   these	
   cross-­‐border	
   insolvencies,	
   Canada	
   has	
   had	
   to	
   evolve	
   to	
   keep	
   pace.	
  	
  Evolution,	
  as	
  commonly	
  defined,	
  requires	
  a	
  development	
  or	
  adoption	
  of	
  new	
   traits	
   so	
   as	
   to	
   differentiate	
   from	
   an	
   earlier	
   form.4	
  	
   The	
   common	
   law	
   lends	
   itself	
   to	
   being	
  adaptable,	
  as	
  judges	
  often	
  have	
  flexibility	
  in	
  their	
  interpretation	
  of	
  laws.5	
  	
  This	
   flexibility	
   enables	
   the	
   courts	
   to	
   adopt	
   new	
   principles	
   and	
   thereby	
   progresses	
   evolution	
  of	
  the	
  common	
  law.	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   1	
  Leon	
  C.	
  Megginson,	
  “Lessons	
  from	
  Europe	
  for	
  American	
  Business”	
  (1963)	
  44:1	
  Southwest	
  Soc	
  Sci	
  Q 	
   3	
  at	
  4.	
  	
  	
   2	
  Foreign	
  Affairs,	
  Trade	
  and	
  Development	
  Canada,	
  online:	
   <http://www.international.gc.ca/economist-­‐economiste/assets/pdfs/Data/investments-­‐ investissements/FDI_by_Country/FDI_stocks-­‐Inward_by_Country-­‐ENG.pdf>	
  (accessed	
  on	
  4	
  July	
   2013).	
   3 American	
  Law	
  Institute,	
  Transnational	
  Insolvency:	
  Cooperation	
  Among	
  the	
  NAFTA	
  Countries.	
   International	
  Statement	
  of	
  Canadian	
  Bankruptcy	
  Law	
  (Huntington,	
  NY:	
  Juris	
  Publishing,	
  2003)	
  at	
  67.	
   4	
  Merriam-­‐Webster,	
  online:	
  Merriam-­‐Webster	
  <http://www.merriam-­‐ webster.com/dictionary/evolution>.	
   5	
  Melvin	
  Aron	
  Eisenberg,	
  The	
  Nature	
  of	
  the	
  Common	
  Law,	
  (Cambridge,	
  Massachusetts:	
  Harvard	
   University	
  Press,	
  1988)	
  at	
  5.	
    	
    1	
    Throughout	
   the	
   course	
   of	
   history,	
   evolution	
   has	
   resulted	
   in	
   the	
   rise	
   and	
   fall	
   of	
   countless	
   species.	
   	
   Analogous	
   to	
   Earth’s	
   differentiating	
   ecosystem,	
   Canada’s	
   own	
   legal	
  system	
  has	
  also	
  seen	
  the	
  creation	
  of	
  new	
  life,	
  in	
  the	
  form	
  of	
  laws,	
  as	
  well	
  as	
  the	
   subsequent	
   extinction	
   of	
   legal	
   codes	
   that	
   have	
   outlived	
   their	
   usefulness.	
   	
   	
   One	
   of	
   Canada’s	
   more	
   recent	
   evolutionary	
   leaps	
   is	
   the	
   adoption	
   of	
   credit	
   bidding	
   in	
   the	
   Companies’	
   Creditors	
   Arrangement	
   Act	
   (CCAA)6	
  proceedings	
   through	
   cross-­‐border	
   insolvency	
   cases	
   with	
   the	
   US.	
   	
   What	
   is	
   credit	
   bidding?	
   	
   Credit	
   bidding	
   is	
   best	
   understood	
   through	
   a	
   hypothetical	
   US	
   situation.	
   	
   For	
   example,	
   a	
   secured	
   creditor	
   loans	
   a	
   restaurant	
   owner	
   $5,000	
   and	
   takes	
   security	
   interest	
   in	
   a	
   refrigerator.	
  	
   Subsequently,	
  the	
  restaurant	
  owner	
  files	
  for	
  protection	
  under	
  Chapter	
  11	
  of	
  the	
  US	
   Bankruptcy	
  Code7	
  and	
   wants	
   to	
   sell	
   the	
   refrigerator	
   free	
   and	
   clear	
   of	
   any	
   attached	
   liens.	
  	
  During	
  the	
  asset	
  sale	
  at	
  an	
  open	
  auction,	
  the	
  secured	
  creditor	
  could	
  credit	
  bid	
   up	
   to	
   $5,000	
   on	
   the	
   refrigerator	
   without	
   needing	
   to	
   produce	
   actual	
   cash.	
   	
   If	
   the	
   secured	
  creditor	
  happens	
  to	
  be	
  outbid	
  during	
  the	
  course	
  of	
  the	
  auction	
  by	
  another	
   purchaser,	
  the	
  secured	
  creditor	
  would	
  still	
  be	
  entitled	
  to	
  receive	
  his	
  full	
  $5,000.8	
  	
  	
   	
   The	
   US	
   courts	
   have	
   had	
   the	
   opportunity	
   to	
   amass	
   case	
   law	
   regarding	
   credit	
   bidding,	
   particularly	
   regarding	
   when	
   creditors	
   have	
   the	
   right	
   to	
   credit	
   bid	
   and	
   when	
   debtors	
   have	
   the	
   ability	
   to	
   deny	
   that	
   right.	
   	
   However,	
   the	
   US	
   case	
   law	
   is	
   neither	
   straightforward	
   nor	
   does	
   it	
   agree.	
   	
   In	
   fact,	
   this	
   disparity	
   in	
   case	
   law	
   is	
   largely	
   due	
   to	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   6	
  Companies’	
  Creditors	
  Arrangement	
  Act,	
  RSC	
  1985,	
  c.	
  C-­‐36,	
  as	
  amended	
  [CCAA].	
   7	
  11	
  USC	
  (2012).	
   8	
  See	
  Joshua	
  Barney,	
  “Chapter	
  11	
  Reorganizations	
  and	
  Credit	
  Bidding:	
  Why	
  the	
  Third	
  Circuit	
  Erred	
  in	
   In	
  re	
  Philadelphia	
  Newspapers,	
  LLC”	
  (2011)	
  10	
  DePaul	
  Bus	
  &	
  Com	
  LJ	
  55	
  (provides	
  another	
   hypothetical	
  example	
  at	
  60).	
    	
    2	
    another	
   provision	
   situated	
   within	
   the	
   US	
   Bankruptcy	
   Code,	
   which	
   has	
   recently	
   served	
  as	
  a	
  loophole	
  for	
  debtors	
  in	
  order	
  to	
  deny	
  their	
  creditors	
  the	
  right	
  to	
  credit	
   bid	
   providing	
   that	
   the	
   secured	
   creditors’	
   claims	
   can	
   be	
   satisfied	
   through	
   an	
   “indubitable	
   equivalent.”9	
  	
   The	
   term	
   “indubitable	
   equivalent”	
   was	
   coined	
   by	
   Judge	
   Learned	
  Hand10	
  and	
  is	
  generally	
  held	
  by	
  caselaw	
  to	
  mean	
  that	
  which	
  is	
  equivalent	
  to	
   the	
  value	
  of	
  the	
  collateral.11	
  	
   The	
  problem	
  is	
  not	
  in	
  the	
  definition,	
  but	
  in	
  identifying	
   that	
  which	
  can	
  be	
  said	
  to	
  constitute	
  the	
  “indubitable	
  equivalent.”	
  	
  A	
  string	
  of	
  recent	
   US	
   cases	
   have	
   interpreted	
   this	
   provision	
   so	
   as	
   to	
   grant	
   debtors	
   the	
   ability	
   to	
   deny	
   secured	
  creditors	
  their	
  right	
  to	
  credit	
  bid;	
  however,	
  these	
  decisions	
  were	
  met	
  with	
  a	
   great	
   deal	
   of	
   controversy	
   and	
   ultimately	
   required	
   the	
   US	
   Supreme	
   Court	
   to	
   weigh	
   in	
   on	
  the	
  matter.12	
  	
  	
   	
   Credit	
  bidding	
  gained	
  momentum	
  in	
  Canada	
  when	
  it	
  was	
  recently	
  approved	
  in	
  White	
   Birch	
   Paper	
   Holding	
   Company,	
   a	
   case	
   involving	
   a	
   cross-­‐border	
   insolvency	
   proceeding. 13 	
  	
   The	
   recent	
   inclusion	
   of	
   credit	
   bidding	
   in	
   Canadian	
   insolvency	
   proceedings	
  means	
  that	
  there	
  is	
  very	
  little	
  guidance	
  or	
  rules	
  as	
  to	
  its	
  application	
  in	
  a	
   Canadian	
   context.	
   The	
   few	
   Canadian	
   cases	
   that	
   exist	
   often	
   pertain	
   to	
   cross-­‐border	
   proceedings	
  involving	
  the	
  US.	
  	
  The	
  void	
  of	
  Canadian	
  case	
  law	
  on	
  the	
  matter	
  has	
  not	
   prevented	
  the	
  Canadian	
  courts	
  from	
  approaching	
  credit	
  bidding	
  with	
  an	
  open	
  mind	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   9	
  11	
  USC	
  §	
  1129(b)(2)(A)(iii)	
  (2012).	
   10	
  In	
  re	
  Murel	
  Holding	
  Corp.,	
  75	
  F	
  2d	
  941	
  at	
  942	
  (2d	
  Cir	
  1935).	
   11	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  599	
  F	
  3d	
  298	
  at	
  310	
  (3d	
  Cir	
  2010).	
   12	
  See	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  ibid;	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  584	
  F	
  3d	
  229	
  (5th	
  Cir	
  2009);	
   River	
  Road	
  Hotel	
  Partners,	
  LLC	
  v	
  Amalgamated	
  Bank,	
  651	
  F	
  3d	
  642	
  (7th	
  Cir	
  2011)	
  [River	
  Road].	
  	
   13	
  White	
  Birch	
  Paper	
  Holding	
  Company	
  (Arrangement	
  relatif	
  à),	
  2010	
  QCCS	
  4915,	
  [2010]	
  QJ	
  No	
  10469	
   [White	
  Birch].	
   	
   	
    3	
    and	
   while	
   Canada’s	
   aptitude	
   and	
   openness	
   to	
   accepting	
   foreign	
   doctrines	
   is	
   commendable,	
   there	
   may	
   also	
   be	
   pitfalls	
   from	
   integrating	
   credit	
   bidding	
   into	
   domestic	
  proceedings.	
  	
  First	
  of	
  all,	
  credit	
  bidding	
  is	
  still	
  very	
  much	
  a	
  controversial	
   topic	
  in	
  the	
  US,	
  the	
  country	
  of	
  its	
  legislative	
  and	
  judicial	
  conception.	
  	
  The	
  uncertain	
   nature	
   of	
   credit	
   bidding	
   in	
   the	
   US	
   increases	
   time	
   and	
   monetary	
   expenditures	
   as	
   debtors	
   and	
   creditors	
   dispute	
   its	
   application.	
   	
   These	
   issues	
   might	
   seep	
   into	
   the	
   Canadian	
   arena	
   just	
   as	
   easily	
   as	
   credit	
   bidding	
   was	
   accepted	
   into	
   Canadian	
   insolvency	
  proceedings.	
  	
   	
   As	
  with	
  all	
  life	
  forms,	
  the	
  potential	
  for	
  mutation	
  and	
  the	
  subsequent	
  evolution	
  of	
  a	
   new	
  creature,	
  such	
  as	
  credit	
  bidding,	
  is	
  always	
  a	
  risk.	
  	
  Therefore,	
  an	
  argument	
  can	
   be	
   made	
   for	
   the	
   incorporation	
   of	
   credit	
   bidding	
   into	
   legislation	
   to	
   cement	
   it	
   into	
   place	
  in	
  the	
  bankruptcy	
  world.	
  	
  On	
  the	
  flip	
  side,	
  the	
  beauty	
  of	
  the	
  current	
  Canadian	
   regime,	
   and	
   the	
   reason	
   why	
   credit	
   bidding	
   was	
   able	
   to	
   be	
   included	
   in	
   Canadian	
   bankruptcy	
   proceedings	
   to	
   begin	
   with,	
   is	
   largely	
   due	
   to	
   the	
   flexible	
   nature	
   of	
   the	
   CCAA.	
  	
  Hence,	
  adding	
  more	
  legislation	
  could	
  stifle	
  further	
  evolution.	
  	
  My	
  thesis’	
  goal	
   is	
   to	
   illuminate	
   the	
   gaps	
   in	
   the	
   current	
   Canadian	
   bankruptcy	
   and	
   insolvency	
   legislation,	
  identify	
  potential	
  problems	
  arising	
  from	
  adopting	
  credit	
  bidding	
  without	
   the	
   checks	
   and	
   balances	
   enjoyed	
   by	
   the	
   US	
   from	
   years	
   of	
   case	
   law	
   and	
   legislation,	
   and	
  discuss	
  possible	
  solutions	
  to	
  address	
  the	
  problem.	
  	
   	
   	
   	
    	
    4	
    CHAPTER	
  2:	
  CREDIT	
  BIDDING	
  OUTSIDE	
  OF	
  BANKRUPTCY	
  	
   2.1	
  Introduction	
   The	
   fundamental	
   entitlement	
   of	
   secured	
   creditors	
   –	
   in	
   or	
   out	
   of	
   bankruptcy	
  –	
  is	
  to	
  be	
  paid	
  in	
  full,	
  up	
  to	
  the	
  value	
  of	
  their	
  collateral,	
  in	
   priority	
  to	
  unsecured	
  creditors.14	
  	
  	
   	
   The	
   above	
   quote	
   sums	
   up	
   concisely	
   one	
   key	
   objective	
   of	
   commercial	
   and	
   insolvency	
   legislation	
   –	
   satisfying	
   secured	
   creditors.	
   	
   The	
   US	
   and	
   Canadian	
   bankruptcy	
   legislation	
   provide	
   guidance	
   once	
   a	
   debtor	
   becomes	
   insolvent,	
   but	
   prior	
   to	
   a	
   debtor’s	
   descent	
   into	
   financial	
   distress,	
   the	
   debtor-­‐creditor	
   relationship	
   is	
   governed	
   by	
   commercial	
   legislation.	
   	
   According	
   to	
   the	
   British	
   Columbia	
   Personal	
   Property	
   Security	
   Act, 15 	
  a	
   debtor	
   is	
   generally	
   defined	
   as	
   one	
   “who	
   owes	
   payment	
   or	
   performance	
   of	
   an	
   obligation	
   secured.”16	
  	
   These	
   obligations	
   secured	
   are	
   often	
   in	
   the	
   form	
   of	
   monetary	
   loans,	
   which	
   secured	
   creditors	
   have	
   extended	
   with	
   the	
   expectation	
   that	
   the	
   debtor	
   will	
   repay	
   the	
   loan.	
   	
   As	
   a	
   precaution,	
   the	
   secured	
   creditors	
   take	
   a	
   security	
   interest	
   in	
   the	
   debtor’s	
   collateral	
   in	
   the	
   event	
   that	
   the	
   debtor	
   should	
   fail	
   to	
   meet	
   the	
   terms	
   of	
   the	
   security	
   agreement	
   and	
   default.	
  	
   Commercial	
  legislation,	
  such	
  as	
  the	
  PPSA17	
  and	
  the	
  Uniform	
  Commercial	
  Code,18	
  sets	
   out	
   the	
   specifics	
   governing	
   the	
   relationship	
   between	
   a	
   debtor	
   and	
   creditor,	
   remedies,	
  and	
  a	
  hierarchy	
  of	
  priorities	
  when	
  several	
  creditors	
  are	
  involved.	
  	
  While	
   the	
   intricate	
   details	
   pertaining	
   to	
   commercial	
   law	
   are	
   beyond	
   the	
   scope	
   of	
   this	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   14	
  Charles	
  J.	
  Tabb,	
  “Credit	
  Bidding,	
  Security,	
  and	
  the	
  Obsolescence	
  of	
  Chapter	
  11”	
  (2013)	
  U	
  Ill	
  L	
  Rev	
   103	
  at	
  108	
  [footnotes	
  omitted].	
   15	
  Personal	
  Property	
  Security	
  Act,	
  RSBC	
  1996,	
  c	
  359	
  [PPSA]	
  (this	
  legislation	
  deals	
  with	
  secured	
   transactions).	
   16	
  PPSA,	
  ibid	
  s	
  1(1).	
  	
   17	
  For	
  the	
  purposes	
  of	
  this	
  thesis,	
  any	
  references	
  to	
  the	
  PPSA	
  will	
  be	
  made	
  with	
  respect	
  to	
  the	
  British	
   Columbia	
  PPSA.	
  	
  	
   18	
  UCC	
  §	
  9	
  (2004).	
    	
    5	
    thesis,	
  the	
  remedies	
  available	
  to	
  secured	
  creditors	
  are	
  much	
  the	
  same	
  regardless	
  of	
   whether	
  the	
  debtor	
  simply	
  defaults	
  on	
  a	
  secured	
  creditor’s	
  security	
  agreement	
  or	
  he	
   or	
   she	
   becomes	
   insolvent.	
   	
   Hence,	
   credit	
   bidding	
   has	
   an	
   application	
   beyond	
   the	
   insolvency	
  realm.	
  	
  A	
  brief	
  overview	
  of	
  the	
  PPSA	
  and	
  the	
  Uniform	
  Commercial	
  Code	
   will	
   highlight	
   the	
   important	
   similarities	
   of	
   these	
   two	
   pieces	
   of	
   legislation	
   and	
   provide	
  some	
  insight	
  as	
  to	
  how	
  credit	
  biding	
  can	
  translate	
  into	
  not	
  only	
  a	
  Canadian	
   insolvency	
  context	
  but	
  also	
  into	
  commercial	
  law	
  as	
  well.	
  	
  	
   	
   2.2	
  Personal	
  Property	
  Security	
  Act	
   Secured	
   transactions,	
   collateral	
   and	
   the	
   relationships	
   between	
   the	
   debtor	
   and	
   creditor	
  are	
  all	
  governed	
  by	
  versions	
  of	
  the	
  PPSA19	
  in	
  Canada	
  and	
  by	
  Articles	
  8	
  and	
  9	
   of	
   the	
   Uniform	
   Commercial	
   Code	
   in	
   the	
   United	
   States.	
   	
   Large	
   portions	
   of	
   the	
   PPSA	
   are	
  taken	
  directly	
  from	
  Articles	
  8	
  and	
  9	
  of	
  the	
  Uniform	
  Commercial	
  Code.	
  	
  Ontario	
   was	
   the	
   first	
   province	
   to	
   adopt	
   Articles	
   8	
   and	
   9,	
   with	
   most	
   other	
   provinces	
   subsequently	
   using	
   the	
   Ontario	
   version	
   as	
   a	
   basis	
   on	
   which	
   to	
   model	
   their	
   own	
   commercial	
   legislation.20	
  	
   It	
   naturally	
   flows	
   from	
   this	
   derivation	
   that	
   these	
   pieces	
   of	
   legislation	
  are	
  similar	
  in	
  nature.	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   19	
  With	
  the	
  exception	
  of	
  Quebec;	
  See	
  Civil	
  Code	
  of	
  Quebec,	
  SQ	
  1991,	
  c	
  64,	
  Book	
  6.	
  	
  For	
  other	
  provincial	
   PPSAs	
  see	
  Ontario’s	
  Personal	
  Property	
  Security	
  Act,	
  RSO	
  1990,	
  c	
  P.10;	
  Alberta’s	
  Personal	
  Property	
   Security	
  Act,	
  RSA	
  2000,	
  c	
  P-­‐7;	
  Manitoba’s	
  The	
  Personal	
  Property	
  Security	
  Act,	
  SM	
  1993,	
  c	
  14;	
   Saskatchewan’s	
  The	
  Personal	
  Property	
  Security	
  Act,	
  1993,	
  SS	
  1993,	
  c	
  P-­‐6.2;	
  New	
  Brunswick’s	
  Personal	
   Property	
  Security	
  Act,	
  SNB	
  1993,	
  c	
  P-­‐7.1;	
  Newfoundland	
  and	
  Labrador’s	
  Personal	
  Property	
  Security	
   Act,	
  SNL	
  1998,	
  c	
  P-­‐7.1;	
  Northwest	
  Territories’	
  Personal	
  Property	
  Security	
  Act,	
  SNWT	
  1994,	
  c	
  8;	
  Nova	
   Scotia’s	
  Personal	
  Property	
  Security	
  Act,	
  SNS	
  1995-­‐96,	
  c	
  13;	
  Prince	
  Edward	
  Island’s	
  Personal	
  Property	
   Security	
  Act,	
  RSPEI	
  1988,	
  c	
  P-­‐3.1;	
  Yukon’s	
  Personal	
  Property	
  Security	
  Act,	
  RSY	
  2002,	
  c	
  169.	
   20	
  Bruce	
  MacDougall,	
  Personal	
  Property	
  Security	
  Law	
  in	
  British	
  Columbia	
  (Markham,	
  Ontario:	
   LexisNexis,	
  2009)	
  at	
  9.	
    	
    6	
    Upon	
   default	
   by	
   the	
   debtor,	
   the	
   PPSA	
   sets	
   out	
   statutory	
   remedies	
   that	
   secured	
   creditors	
   may	
   use	
   in	
   addition	
   to	
   any	
   common	
   law	
   remedies	
   already	
   available.21	
  	
   These	
   remedies	
   include	
   remedies	
   set	
   out	
   in	
   the	
   security	
   agreement	
   and	
   remedies	
   provided	
  by	
  the	
  PPSA	
  itself.22	
  	
  The	
  relevant	
  remedy,	
  for	
  the	
  purposes	
  of	
  this	
  thesis,	
  is	
   the	
   disposition	
   of	
   the	
   collateral	
   by	
   the	
   secured	
   creditors,	
   set	
   out	
   it	
  section	
  59.23	
  	
  The	
   disposition	
   of	
   the	
   collateral	
   may	
   be	
   accomplished	
   either	
   through	
   a	
   public	
   or	
   private	
   sale.24	
  	
   A	
   key	
   element	
   of	
   this	
   section	
   is	
   the	
   ability	
   of	
   the	
   secured	
   creditors	
   to	
   purchase	
   the	
   collateral	
   at	
   a	
   public	
   sale,	
   provided	
   that	
   the	
   purchase	
   price	
   is	
   a	
   reasonable	
  fair	
  market	
  value	
  of	
  the	
  collateral.25	
  	
   While	
  the	
  wording	
  of	
  the	
  provision	
   speaks	
   to	
   the	
   legislature’s	
   concern	
   with	
   the	
   secured	
   creditors	
   undervaluing	
   the	
   collateral	
  at	
  a	
  public	
  auction	
  to	
  the	
  obvious	
  detriment	
  of	
  the	
  debtor	
  and	
  any	
  other	
   subordinate	
   parties,	
   the	
   PPSA	
   seems	
   to	
   ignore	
   the	
   issue	
   of	
   outside	
   third	
   parties	
   undervaluing	
   the	
   collateral	
   at	
   auction.	
   	
   An	
   argument	
   could	
   be	
   made	
   that	
   if	
   the	
   secured	
  creditors	
  suspected	
  an	
  undervaluation,	
  they	
  could	
  simply	
  submit	
  a	
  bid	
  that	
   reflected	
   a	
   more	
   appropriate	
   valuation	
   of	
   the	
   collateral.	
   	
   Of	
   course,	
  this	
   argument	
   is	
   based	
   on	
   the	
   assumption	
   that	
   the	
   secured	
   creditors	
   have	
   the	
   ability	
   to	
   expend	
   more	
   resources,	
   and	
   money,	
   on	
   the	
   collateral,	
   which	
   may	
   not	
   be	
   the	
   case.	
   	
   Recognizing	
   that	
   the	
   purchase	
   money	
   will	
   be	
   returned	
   to	
   the	
   secured	
   creditors	
   to	
   satisfy	
   the	
   obligation	
   owed,	
   the	
   secured	
   creditors	
   must	
   still	
   face	
   the	
   dilemma	
   of	
   raising	
   more	
   capital	
   to	
   purchase	
   the	
   encumbered	
   assets.	
   	
   Alternatively,	
   if	
   the	
   secured	
   creditors	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   21	
  PPSA,	
  supra	
  note	
  15,	
  s	
  68(1)	
  (common	
  law	
  continues	
  to	
  apply	
  so	
  long	
  as	
  they	
  are	
  not	
  inconsistent	
   with	
  the	
  provisions	
  of	
  the	
  Act).	
   22	
  PPSA,	
  supra	
  note	
  15,	
  s	
  56(2).	
   23	
  PPSA,	
  supra	
  note	
  15,	
  s	
  59.	
   24	
  PPSA,	
  supra	
  note	
  15,	
  s	
  59(3).	
   25	
  PPSA,	
  supra	
  note	
  15,	
  s	
  59(13).	
    	
    7	
    wanted	
   the	
   collateral	
   but	
   had	
   no	
   means	
   to	
   purchase	
   at	
   auction,	
   they	
   could	
   foreclose	
   and	
   take	
   possession	
   of	
   the	
   assets. 26 	
  	
   The	
   problem	
   with	
   this	
   remedy	
   is	
   that	
   it	
   precludes	
   the	
   lenders	
   from	
   seeking	
   any	
   deficit	
   that	
   the	
   collateral	
   fails	
   to	
   cover.	
  	
   Foreclosing	
   is	
   deemed	
   to	
   have	
   satisfied	
   in	
   full	
   the	
   obligation	
   secured.27	
  	
   A	
   more	
   logical	
  solution	
  to	
  avoid	
  this	
  circular	
  dilemma	
  would	
  be	
  to	
  allow	
  credit	
  bidding.	
  	
  Not	
   surprisingly,	
  credit	
  bidding	
  has	
  been	
  employed	
  in	
  receivership	
  cases	
  in	
  Canada.28	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   	
   2.3	
  Uniform	
  Commercial	
  Code	
   The	
   Uniform	
   Commercial	
   Code	
   also	
   enables	
   secured	
   creditors	
   to	
   dispose	
   of	
   collateral	
  via	
  private	
  or	
  public	
  sale.29	
  	
  The	
  traditional	
  procedural	
  method	
  for	
  secured	
   creditors	
   to	
   collect	
   on	
   their	
   security,	
   outside	
   of	
   bankruptcy,	
   is	
   to	
   foreclose	
   on	
   the	
   collateral	
  through	
  judicial	
  procedure.30	
  	
   The	
  secured	
  parties	
  may	
  then	
  purchase	
  the	
   collateral	
   subsequently	
   either	
   through	
   a	
   public	
   disposition	
   or	
   privately	
   if	
   the	
   collateral	
  is	
  the	
  kind	
  that	
  has	
  standardized	
  prices	
  or	
  sold	
  on	
  recognized	
  markets.31	
  	
   One	
   noticeable	
   difference	
   between	
   the	
   Uniform	
   Commercial	
   Code	
   and	
   the	
   PPSA	
  is	
   the	
   remedy	
   of	
   foreclosure.	
   	
   As	
   noted	
   prior,	
   the	
   PPSA	
   views	
   a	
   foreclosure	
   on	
   collateral	
   as	
   fulfillment	
   of	
   the	
   obligation	
   secured.	
   	
   Under	
   the	
   Uniform	
   Commercial	
   Code,	
  “acceptance	
  of	
  collateral,”	
  as	
  it	
  is	
  called,	
  fulfills	
  the	
  obligation	
  secured	
  only	
  to	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   26	
  PPSA,	
  supra	
  note	
  15,	
  s	
  61(1).	
   27	
  PPSA,	
  supra	
  note	
  15,	
  s	
  61(3).	
   28	
  See	
  Canrock	
  Ventures	
  LLC	
  v	
  Amerbcore	
  Software	
  Inc.,	
  2011	
  ONSC	
  2308,	
  [2011]	
  OJ	
  No	
  1705	
   [Canrock];	
  CCM	
  Master	
  Qualified	
  Fund	
  Ltd.	
  v	
  blutip	
  Power	
  Technologies	
  Ltd.,	
  2012	
  ONSC	
  1750,	
  90	
  CBR	
   (5th)	
  74	
  [CCM	
  Master].	
  	
   29	
  UCC	
  §	
  9-­‐610(c)	
  (2004).	
   30	
  Ibid	
  §	
  9-­‐601(f). 31	
  Ibid	
  §	
  9-­‐610(c).	
   	
    8	
    the	
  extent	
  agreed	
  upon	
  by	
  both	
  the	
  debtor	
  and	
  secured	
  creditors.	
  32	
  	
  	
  In	
  other	
  words,	
   secured	
   creditors	
   can	
   still	
   claim	
   for	
   any	
   deficiency. 33 	
  	
   Furthermore,	
   and	
   most	
   importantly,	
  lenders	
  are	
  entitled	
  to	
  credit	
  bid.34	
  	
  	
   	
   Although	
  there	
  is	
  no	
  mention	
  of	
  credit	
  bidding	
  in	
  the	
  Uniform	
  Commercial	
  Code,35	
   various	
   state	
   courts	
   and	
   statutes	
   have	
   recognized	
   the	
   secured	
   creditors’	
   right	
   to	
   credit	
  bid.36	
  	
   For	
  example,	
  in	
  In	
  re	
  The	
  Colad	
  Group,	
  Inc.	
  the	
  secured	
  creditor	
  sought	
   to	
   have	
   additional	
   loan	
   fees	
   that	
   were	
   advanced	
   to	
   an	
   insolvent	
   debtor	
   to	
   be	
   incorporated	
   into	
   the	
   secured	
   position	
   of	
   the	
   original	
   loan.37	
  	
   The	
   Bankruptcy	
   Court	
   reviewed	
   the	
   addition	
   of	
   the	
   loan	
   fees	
   both	
   from	
   a	
   bankruptcy	
   perspective	
   and	
   a	
   Uniform	
  Commercial	
  Code	
  perspective,	
  making	
  note	
  of	
  the	
  secured	
  creditor’s	
  ability	
   to	
   credit	
   bid	
   outside	
   of	
   bankruptcy	
   in	
   accordance	
   with	
   the	
   “commercially	
   reasonable”	
  standard	
  in	
  Article	
  9.38	
  	
   In	
  Sky	
  Technologies	
  LCC	
  v.	
  SAP	
  AG,	
  the	
  secured	
   creditor	
   foreclosed	
   on	
   its	
   security	
   interests	
   and	
   then	
   purchased	
   the	
   assets	
   at	
   a	
   public	
  auction	
  using	
  a	
  credit	
  bid	
  whereby	
  the	
  secured	
  creditor	
  was	
  the	
  sole	
  bidder.39	
  	
   Similarly,	
   the	
   court	
   in	
   Cornelison	
   v.	
   Kornbluth	
   found	
   that	
   in	
   a	
   non-­‐judicial	
   sale,	
   a	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   32	
  Ibid	
  §	
  9-­‐620. 33	
  Ibid	
  §	
  9-­‐620(g)	
  (except	
  in	
  cases	
  involving	
  a	
  consumer	
  transaction).	
   34	
  In	
  re	
  The	
  Colad	
  Group,	
  Inc.,	
  324	
  BR	
  208	
  at	
  222	
  (Bankr	
  WD	
  NY	
  2005).	
  	
  	
   35	
  Donald	
  S.	
  Bernstein,	
  Brian	
  Resnick	
  &	
  Hilary	
  Dengel,	
  “The	
  Logic	
  and	
  Limits	
  of	
  Credit	
  Bidding	
  by	
   Secured	
  Creditors	
  Under	
  the	
  Bankruptcy	
  Code”	
  (Paper	
  delivered	
  at	
  the	
  Thirty-­‐Seventh	
  Annual	
   Lawrence	
  P.	
  King	
  and	
  Charles	
  Seligson	
  Workshop	
  on	
  Bankruptcy	
  and	
  Business	
  Reorganization,	
  22	
   July	
  2011)	
  at	
  7,	
  online:	
  Social	
  Science	
  Research	
  Network	
   <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1975932>.	
   36	
  Jason	
  S.	
  Brookner,	
  “Pacific	
  Lumber	
  and	
  Philadelphia	
  Newspapers:	
  The	
  Eradication	
  of	
  a	
  Carefully	
   Constructed	
  Statutory	
  Regime	
  Through	
  Misinterpretation	
  of	
  Section	
  1129(b)(2)(A)	
  of	
  the	
   Bankruptcy	
  Code”	
  (2011)	
  85	
  Am	
  Bank	
  LJ	
  127	
  (“[c]ase	
  law	
  and	
  statutes	
  in	
  42	
  states	
  and	
  the	
  District	
  of	
   Columbia	
  either	
  expressly	
  or	
  implicitly	
  authorize	
  or	
  recognize	
  the	
  right	
  to	
  credit	
  bid”	
  at	
  139,	
  n	
  68).	
   37	
  In	
  re	
  The	
  Colad	
  Group,	
  Inc.,	
  supra	
  note	
  34.	
   38	
  Supra	
  note	
  29,	
  §	
  9-­‐610.	
   39	
  Sky	
  Technologies	
  LCC	
  v	
  SAP	
  AG,	
  576	
  F	
  3d	
  1374	
  (Fed	
  Cir	
  2009).	
    	
    9	
    creditor	
   is	
   entitled	
   to	
   credit	
   bid	
   “up	
   to	
   the	
   amount	
   of	
   his	
   indebtedness,	
   since	
   it	
   would	
   be	
   useless	
   to	
   require	
   him	
   to	
   tender	
   cash	
   which	
   would	
   only	
   be	
   immediately	
   returned	
   to	
   him.”40	
  	
   While	
   the	
   Uniform	
   Commercial	
   Code	
   is	
   silent	
   with	
   respect	
   to	
   credit	
   bidding,	
   state	
   case	
   law	
   and	
   statutes	
   have	
   generally	
   come	
   to	
   the	
   same	
   conclusion	
  –	
  a	
  secured	
  creditor	
  has	
  a	
  right	
  to	
  credit	
  bid.	
  	
   	
   2.4	
  Summary	
   The	
   secured	
   creditors’	
   right	
   to	
   credit	
   bid	
   both	
   in	
   and	
   out	
   of	
   a	
   bankruptcy	
   context	
   appears	
   to	
   be	
   well-­‐established	
   in	
   the	
   US.	
   	
   The	
   rights	
   and	
   remedies	
   afforded	
   to	
   secured	
   creditors	
   under	
   commercial	
   law	
   do	
   not	
   cease	
   to	
   exist	
   once	
   the	
   debtor	
   becomes	
  insolvent.	
  	
  Instead,	
  upon	
  entering	
  financial	
  distress,	
  insolvency	
  legislation	
   acts	
   in	
   tandem	
   with	
   commercial	
   legislation	
   to	
   control	
   the	
   relationship	
   between	
   creditors	
  and	
  debtors.	
  	
  Although	
  not	
  explicitly	
  addressed	
  in	
  the	
  Uniform	
  Commercial	
   Code,	
  US	
  courts	
  have	
  viewed	
  credit	
  bidding	
  as	
  a	
  secured	
  creditor’s	
  right.	
  	
  It	
  would	
  be	
   counterintuitive	
  to	
  allow	
  credit	
  bidding	
  in	
  an	
  insolvency	
  context	
  but	
  not	
  extend	
  the	
   remedy	
   to	
   secured	
   creditors	
   generally,	
   especially	
   when	
   the	
   rights	
   of	
   secured	
   creditors	
  are	
  meant	
  to	
  be	
  served	
  by	
  both	
  pieces	
  of	
  legislation.	
  	
  The	
  fact	
  that	
  the	
  PPSA	
   stems	
   from	
   the	
   Uniform	
   Commercial	
   Code	
   would	
   imply	
   that	
   credit	
   bidding,	
   while	
   not	
   inconsistent	
   with	
   the	
   objectives	
   of	
   the	
   Uniform	
   Commercial	
   Code,	
   would	
   also	
   not	
  be	
  inconsistent	
  with	
  the	
  goals	
  of	
  the	
  PPSA.	
  	
  Credit	
  bidding	
  furthers	
  the	
  objectives	
   of	
   the	
   PPSA	
   by	
   providing	
   yet	
   another	
   method	
   to	
   recoup	
   the	
   obligation	
   secured.	
  	
   Therefore,	
  while	
  this	
  thesis	
  focuses	
  on	
  the	
  impact	
  on	
  secured	
  creditors	
  in	
  insolvency	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   40	
  Cornelison	
  v	
  Kornbluth,	
  15	
  Cal	
  3d	
  590	
  at	
  607	
  (Sup	
  Ct	
  1975). 	
    10	
    proceedings,	
  the	
  conclusions	
  drawn	
  from	
  this	
  thesis	
  could	
  also	
  have	
  implications	
  on	
   the	
  rights	
  of	
  secured	
  creditors	
  outside	
  of	
  a	
  bankruptcy	
  context	
  in	
  Canada.	
  	
  	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
    	
    11	
    CHAPTER	
  3:	
  US	
  LEGISLATION	
  –	
  CREDIT	
  BIDDING	
  IS	
  GIVEN	
  LEGISLATIVE	
  LIFE	
   3.1	
  Introduction	
   Prior	
  to	
  the	
  current	
  US	
  bankruptcy	
  scheme,	
  debtors	
  had	
  considerable	
  control	
  over	
   the	
   execution	
   of	
   sales	
   of	
   collateral.	
   	
   The	
   debtor	
   could	
   “pick	
   the	
   time	
   when	
   it	
   want[ed]	
  to	
  either	
  redeem	
  or	
  sell	
  the	
  collateral,	
  and	
  [could]	
  redeem	
  or	
  sell	
  without	
   competition	
   from	
   the	
   secured	
   creditor,	
   at	
   a	
   price	
   set	
   by	
   the	
   court	
   or	
   at	
   auction.”41	
   Secured	
   creditors	
   were	
   limited	
   in	
   their	
   rights	
   to	
   the	
   collateral,	
   with	
   courts	
   stating	
   that	
   the	
   most	
   secured	
   creditors	
   could	
   expect	
   was	
   protection	
   “to	
   the	
   extent	
   of	
   the	
   value	
  of	
  the	
  property.	
  	
  There	
  is	
  no	
  constitutional	
  claim	
  of	
  the	
  creditor	
  to	
  more	
  than	
   that.”42	
  	
  However,	
  the	
  modest	
  rights	
  afforded	
  to	
  secured	
  creditors	
  would	
  soon	
  prove	
   to	
   be	
   the	
   impetus	
   to	
   encasing	
   credit	
   bidding	
   in	
   legislation.	
   	
   Bankruptcy	
   laws	
   were	
   due	
  for	
  an	
  overhaul	
  and	
  the	
  In	
  re	
  Pine	
  Gate	
  case	
  only	
  added	
  more	
  fuel	
  to	
  the	
  fire.43	
   	
   3.2	
  In	
  re	
  Pine	
  Gate	
  	
   In	
   re	
   Pine	
   Gate	
   dealt	
   with	
   a	
   Chapter	
   XII	
   property	
   arrangement	
   under	
   the	
   then	
   in-­‐ effect	
  Bankruptcy	
  Code.44	
  	
   According	
  to	
  the	
  proposed	
  arrangement	
  plan,	
  the	
  debtors	
   moved	
  to	
  have	
  the	
  mortgagee	
  creditors’	
  collateral	
  appraised	
  and	
  then	
  to	
  pay	
  out	
  the	
   mortgagee	
  creditors	
  the	
  appraised	
  value	
  in	
  cash.	
  	
  However,	
  the	
  mortgagee	
  creditors	
   rejected	
  this	
  plan	
  and	
  instead	
  demanded	
  to	
  be	
  paid	
  out	
  the	
  full	
  amount	
  of	
  their	
  claim	
   or	
   have	
   the	
   collateral	
   handed	
   over.	
   	
   The	
   creditors	
   acknowledged	
   the	
   fact	
   that	
   the	
   value	
   of	
   their	
   security	
   was	
   less	
   than	
   the	
   debtor	
   owed.	
   	
   As	
   such,	
   the	
   court	
   stated	
   that	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   41	
  Tabb,	
  supra	
  note	
  14	
  at	
  117.	
   42	
  Wright	
  v	
  Union	
  Central	
  Life	
  Insurance	
  Co.,	
  311	
  US	
  273	
  at	
  278	
  (1940)	
  [footnotes	
  omitted].	
   43	
  In	
  re	
  Pine	
  Gate	
  Associates,	
  Ltd.,	
  1976	
  US	
  Dis	
  LEXIS	
  17366	
  (Bankr	
  ND	
  Ga)	
  [In	
  re	
  Pine	
  Gate].	
   44	
  11	
  USC	
  (Supp	
  1935).	
   	
    12	
    they	
   could	
   not	
   expect	
   to	
   be	
   paid	
   in	
   full	
   the	
   amount	
   owed	
   since	
   the	
   collateral	
   itself	
   would	
   not	
   cover	
   the	
   whole	
   of	
   the	
   debt	
   and	
   to	
   pay	
   the	
   full	
   amount	
   would	
   be,	
   in	
   essence,	
   finding	
   that	
   the	
   collateral	
   is	
   worth	
   more	
   than	
   it	
   actually	
   is.45	
  	
   Instead,	
   the	
   “adequate	
   protection”	
   guaranteed	
   to	
   the	
   creditors	
   in	
   accordance	
   with	
   the	
   act	
   would	
   have	
   to	
   be	
   limited	
   to	
   the	
   value	
   of	
   the	
   collateral	
   ascertained	
   via	
   appraisal. 46	
  	
   Furthermore,	
   the	
   court	
   in	
   In	
   re	
   Pine	
   Gate	
   went	
   on	
   to	
   add	
   that	
   “any	
   reasonable	
   method	
  of	
  ascertaining	
  such	
  an	
  appraisal	
  is	
  constitutionally	
  permissible,	
  so	
  long	
  as	
   the	
   creditor	
   is	
   accorded	
   procedural	
   due	
   process	
   and	
   receives	
   the	
   value	
   of	
   the	
   debt.”47	
   	
   The	
   response	
   to	
   this	
   decision	
   was	
   general	
   outrage	
   from	
   secured	
   creditors	
   as	
   any	
   potential	
   lender	
   could	
   be	
   forced	
   to	
   take	
   a	
   diminished	
   cash	
   pay	
   out	
   at	
   time	
   when	
   the	
   market	
   might	
   be	
   depressed	
   or	
   if	
   the	
   appraised	
   value	
   was	
   determined	
   by	
   a	
   judge	
   sympathetic	
  towards	
  the	
  debtor.48	
  	
  	
   	
   3.3	
  A	
  New	
  Life	
  Form	
  Created	
  –	
  Credit	
  Bidding	
  Added	
  to	
  Legislation	
  	
   Following	
   In	
   re	
   Pine	
   Gate,	
   Congress	
   reconsidered	
   its	
   stance	
   on	
   secured	
   creditors’	
   rights,	
   and,	
   as	
   it	
   happened	
   to	
   be	
   in	
   the	
   midst	
   of	
   a	
   general	
   review	
   of	
   bankruptcy	
   legislation,	
  credit	
  bidding	
  was	
  simply	
  added	
  to	
  the	
  list	
  of	
  proposed	
  amendments.49	
  	
   Credit	
   bidding	
   made	
   its	
   first	
   appearance	
   in	
   1977	
   as	
   a	
   provision	
   in	
   the	
   draft	
   bill	
   to	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   45	
  In	
  re	
  Pine	
  Gate,	
  supra	
  note	
  43	
  at	
  27.	
  	
   46	
  In	
  re	
  Pine	
  Gate,	
  supra	
  note	
  43	
  at	
  29.	
   47	
  In	
  re	
  Pine	
  Gate,	
  supra	
  note	
  43	
  at	
  53	
  [footnotes	
  omitted].	
   48	
  Tabb,	
  supra	
  note	
  14	
  at	
  118.	
   49	
  Tabb,	
  supra	
  note	
  14	
  at	
  118-­‐119.	
   	
    13	
    amend	
  the	
  US	
  bankruptcy	
  legislation50	
  before	
  being	
  tweaked	
  and	
  restructured	
  into	
   the	
   current	
   scheme.	
   	
   Upon	
   being	
   signed	
   into	
   law	
   in	
   the	
   Bankruptcy	
   Reform	
   Act	
   of	
   1978,	
   it	
   appeared	
   as	
   if	
   creditors	
   had	
   a	
   guaranteed	
   right	
   to	
   credit	
   bidding.51	
  	
   This	
   right	
  was	
  secured	
  in	
  two	
  different	
  provisions:	
  1.)	
  under	
  an	
  asset	
  sale	
  pursuant	
  to	
  §	
   363(k)	
   and	
   2.)	
   in	
   a	
   Chapter	
   11	
   reorganization	
   plan	
   under	
   §	
   1129(b)(2)(A)(ii).	
  	
   Secured	
   creditors	
   now	
   could	
   rely	
   on	
   these	
   legislated	
   safeguards	
   to	
   prevent	
   the	
   undervaluation	
  of	
  their	
  collateral.	
  	
  	
   	
   Section	
  363(k)	
  of	
  the	
  US	
  Bankruptcy	
  Code	
  now	
  reads:	
    	
    (k)	
   At	
   a	
   sale	
   under	
   subsection	
   (b)	
   of	
   this	
   section	
   of	
   property	
   that	
   is	
   subject	
   to	
   a	
   lien	
   that	
   secures	
   an	
   allowed	
   claim,	
   unless	
   the	
   court	
   for	
   cause	
  orders	
  otherwise	
  the	
  holder	
  of	
  such	
  claim	
  may	
  bid	
  at	
  such	
  sale,	
   and,	
  if	
  the	
  holder	
  of	
  such	
  claim	
  purchases	
  such	
  property,	
  such	
  holder	
   may	
  offset	
  such	
  claim	
  against	
  the	
  purchase	
  price	
  of	
  such	
  property.52	
    Hence,	
  if	
  a	
  debtor	
  decides	
  that	
  its	
  best	
  bet	
  is	
  to	
  sell	
  the	
  collateral	
  during	
  the	
  course	
   of	
  bankruptcy,	
  §	
  363(k)	
  ensures	
  that	
  secured	
  creditors	
  may	
  bid	
  on	
  the	
  collateral	
  at	
   auction	
  using	
  the	
  debt	
  in	
  lieu	
  of	
  cash.	
  	
  The	
  courts	
  have	
  found	
  that	
  secured	
  creditors	
   are	
  entitled	
  to	
  bid	
  up	
  to	
  the	
  “full	
  face	
  value	
  of	
  their	
  secured	
  claims	
  under	
  §	
  363(k).”53	
   Should	
  the	
  secured	
  creditors	
  suspect	
  that	
  the	
  collateral	
  is	
  being	
  undervalued	
  at	
  an	
   auction,	
   the	
   creditors	
   are	
   entitled	
   to	
   submit	
   a	
   credit	
   bid	
   where,	
   presumably,	
   they	
   would	
  bid	
  up	
  to	
  the	
  estimated	
  value	
  of	
  the	
  collateral.	
  	
  Any	
  remaining	
  surplus	
  claim	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   50	
  US,	
  Bill	
  S	
  2266,	
  95th	
  Cong,	
  1977	
  §363(e).	
   51	
  Pub	
  L	
  No	
  95-­‐598,	
  92	
  Stat	
  2549	
  (1978).	
   52	
  11	
  USC	
  §	
  363(k)	
  (2012).	
   53	
  Cohen	
  v	
  KB	
  Mezzanine	
  Fund	
  II,	
  LP	
  (In	
  re	
  SubMicron	
  Systems	
  Corporation),	
  432	
  F	
  3d	
  448	
  at	
  459	
  (3d	
   Cir	
  2006)	
  [SubMicron].	
   	
    14	
    that	
  is	
  not	
  offset	
  by	
  the	
  winning	
  bid	
  becomes	
  an	
  unsecured	
  deficiency	
  claim.54	
  	
  If	
  the	
   creditors	
   are	
   outbid,	
   then	
   their	
   lien	
   attaches	
   to	
   the	
   proceeds	
   of	
   the	
   sale.55	
  	
   Should	
   they	
  bid	
  more	
  than	
  the	
  collateral	
  is	
  worth,	
  the	
  secured	
  creditors	
  risk	
  losing	
  out	
  on	
   an	
  unsecured	
  deficiency	
  claim.	
  	
   	
   However,	
  if	
  the	
  debtor	
  instead	
  decides	
  to	
  pursue	
  a	
  plan	
  of	
  reorganization,	
  secured	
   creditors	
   might	
   still	
   find	
   themselves	
   entitled	
   to	
   credit	
   bid.	
   	
   Under	
   §	
   1129(a),	
   the	
   Bankruptcy	
   Code	
   states	
   that	
   “[t]he	
   court	
   shall	
   confirm	
   a	
   plan	
   only	
   if	
   all	
   of	
   the	
   following	
   requirements	
   are	
   met…,”	
   one	
   of	
   which	
   necessitates	
   that	
   each	
   class	
   of	
   claims	
   or	
   interests	
   approve	
   the	
   proposed	
   plan	
   or	
   are	
   otherwise	
   not	
   impaired.56	
  	
   Despite	
   this	
   provision,	
   a	
   debtor	
   might	
   still	
   be	
   able	
   to	
   “cram	
   down”57	
  the	
   plan	
   over	
   the	
  protesting	
  class	
  by	
  fulfilling	
  requirements	
  under	
  §	
  1129(b).	
  	
  Included	
  in	
  the	
  list	
   of	
  requirements	
  is	
  the	
  provision	
  that	
  the	
  plan	
  must	
  be	
  “fair	
  and	
  equitable.”58	
  	
   What	
   constitutes	
  “fair	
  and	
  equitable”	
  is	
  outlined	
  in	
  	
  §	
  1129(b)(2)(A),	
  which	
  reads:	
  	
   (2)	
  For	
  the	
  purpose	
  of	
  this	
  subsection,	
  the	
  condition	
  that	
  a	
  plan	
  be	
  fair	
   and	
   equitable	
   with	
   respect	
   to	
   a	
   class	
   includes	
   the	
   following	
   requirements:	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   54	
  11	
  USC	
  §	
  506(a)(1)	
  (2012)	
  (“[a]n	
  allowed	
  claim	
  of	
  a	
  creditor	
  secured	
  by	
  a	
  lien	
  on	
  property	
  in	
   which	
  the	
  estate	
  has	
  an	
  interest,	
  or	
  that	
  is	
  subject	
  to	
  setoff	
  under	
  section	
  553	
  of	
  this	
  title,	
  is	
  a	
  secured	
   claim	
  to	
  the	
  extent	
  of	
  the	
  value	
  of	
  such	
  creditor's	
  interest	
  in	
  the	
  estate's	
  interest	
  in	
  such	
  property,	
   or	
  to	
  the	
  extent	
  of	
  the	
  amount	
  subject	
  to	
  setoff,	
  as	
  the	
  case	
  may	
  be,	
  and	
  is	
  an	
  unsecured	
  claim	
  to	
  the	
   extent	
  that	
  the	
  value	
  of	
  such	
  creditor's	
  interest	
  or	
  the	
  amount	
  so	
  subject	
  to	
  setoff	
  is	
  less	
  than	
  the	
   amount	
  of	
  such	
  allowed	
  claim.	
  	
  Such	
  value	
  shall	
  be	
  determined	
  in	
  light	
  of	
  the	
  purpose	
  of	
  the	
  valuation	
   and	
  of	
  the	
  proposed	
  disposition	
  or	
  use	
  of	
  such	
  property,	
  and	
  in	
  conjunction	
  with	
  any	
  hearing	
  on	
  such	
   disposition	
  or	
  use	
  or	
  on	
  a	
  plan	
  affecting	
  such	
  creditor's	
  interest”	
  [emphasis	
  added]).	
   55	
  Alan	
  N.	
  Resnick,	
  “Denying	
  Secured	
  Creditors	
  the	
  Right	
  to	
  Credit	
  Bid	
  in	
  Chapter	
  11	
  Cases	
  and	
  the	
   Risk	
  of	
  Undervaluation”	
  (2012)	
  63	
  Hastings	
  LJ	
  323	
  at	
  330.	
   56	
  11	
  USC	
  §	
  1129(a)(8)	
  (2012).	
   57	
  Kham	
  &	
  Nate’s	
  Shoes	
  No.	
  2,	
  Inc.	
  v	
  First	
  Bank,	
  908	
  F	
  2d	
  1351	
  at	
  1359	
  (7th	
  Cir	
  1990)	
  (referred	
  to	
  as	
   “cramdown	
  plans”	
  because	
  they	
  are	
  “crammed	
  down	
  the	
  throats	
  of	
  objecting	
  creditors”).	
   58	
  11	
  USC	
  at	
  §	
  1129(b)(1)	
  (2012).	
    	
    15	
    	
  	
  	
  	
  	
  	
  	
  (A)	
  With	
  respect	
  to	
  a	
  class	
  of	
  secured	
  claims,	
  the	
  plan	
  provides	
  -­‐	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   (i)(I)	
   that	
   the	
   holders	
   of	
   such	
   claims	
   retain	
   the	
   liens	
   securing	
   such	
   claims,	
   whether	
   the	
   property	
   subject	
   to	
   such	
   liens	
   is	
   retained	
  by	
  the	
  debtor	
  or	
  transferred	
  to	
  another	
  entity,	
  to	
  the	
   extent	
  of	
  the	
  allowed	
  amount	
  of	
  such	
  claims;	
  and	
  (II)	
  that	
  each	
   holder	
   of	
   a	
   claim	
   of	
   such	
   class	
   receive	
   on	
   account	
   of	
   such	
   claim	
   deferred	
  cash	
  payments	
  totaling	
  at	
  least	
  the	
  allowed	
  amount	
  of	
   such	
  claim,	
  of	
  a	
  value,	
  as	
  of	
  the	
  effective	
  date	
  of	
  the	
  plan,	
  of	
  at	
   least	
  the	
  value	
  of	
  such	
  holder's	
  interest	
  in	
  the	
  estate's	
  interest	
   in	
  such	
  property;	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   (ii)	
   for	
   the	
   sale,	
   subject	
   to	
   section	
   363(k)	
   of	
   this	
   title,	
   of	
   any	
   property	
   that	
   is	
   subject	
   to	
   the	
   liens	
   securing	
   such	
   claims,	
   free	
   and	
  clear	
  of	
  such	
  liens,	
  with	
  such	
  liens	
  to	
  attach	
  to	
  the	
  proceeds	
   of	
  such	
  sale,	
  and	
  the	
  treatment	
  of	
  such	
  liens	
  on	
  proceeds	
  under	
   clause	
  (i)	
  or	
  (iii)	
  of	
  this	
  subparagraph;	
  or	
  	
  	
  	
  	
  	
   	
  	
  	
  	
  	
  	
  	
   (iii)	
   for	
   the	
   realization	
   by	
   such	
   holders	
   of	
   the	
   indubitable	
   equivalent	
  of	
  such	
  claims.59	
  	
   	
   The	
   above	
   provision	
   outlines	
   three	
   alternative	
   methods,	
   considered	
   to	
   be	
   fair	
   and	
   equitable,	
   which	
   a	
   debtor	
   may	
   use	
   should	
   it	
   choose	
   to	
   proceed	
   with	
   an	
   asset	
   sale	
   notwithstanding	
  the	
  secured	
  creditors’	
  disapproval.60	
  	
  The	
  first	
  of	
  these	
  alternatives	
   requires	
   that	
   if	
   property	
   secured	
   by	
   liens	
   is	
   transferred	
   or	
   sold,	
   that	
   all	
   liens	
   attached	
  to	
  that	
  property	
  remain	
  attached.61	
  	
  The	
  second	
  alternative,	
  as	
  outlined	
  in	
  §	
   1129(b)(2)(A)(ii),	
   states	
   that	
   an	
   asset	
   may	
   be	
   sold	
   free	
   and	
   clear	
   of	
   any	
   attached	
   liens,	
  and	
  should	
  be	
  in	
  accordance	
  to	
  a	
  sale	
  under	
  §	
  363(k).62	
  	
   Finally,	
  an	
  asset	
  sale	
   may	
   also	
   be	
   approved	
   where	
   the	
   secured	
   creditors	
   receive	
   an	
   “indubitable	
   equivalent”	
   of	
   their	
   claim.63	
  	
   It	
   is	
   the	
   second	
   and	
   third	
   alternatives	
   that	
   have	
   proved	
   to	
  be	
  controversial	
  in	
  recent	
  years.	
  	
  While	
  a	
  sale	
  that	
  purports	
  to	
  sell	
  assets	
  free	
  and	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   59	
  11	
  USC	
  at	
  §	
  1129(b)(2)(A)	
  (2012)	
  [emphasis	
  added].	
   60  Ibid.	
   11	
  USC	
  at	
  §	
  1129(b)(2)(A)(i)	
  (2012).	
   62 11	
  USC	
  at	
  §	
  1129(b)(2)(A)(ii)	
  (2012). 63 11	
  USC	
  at	
  §	
  1129(b)(2)(A)(iii)	
  (2012). 61  	
    16	
    clear	
   of	
   liens	
   would	
   appear	
   to	
   fall	
   under	
   §	
   1129(b)(2)(A)(ii),	
   two	
   cases	
   that	
   have	
   garnered	
   widespread	
   attention	
   have	
   seen	
   debtors	
   persuading	
   the	
   courts	
   that	
   such	
   a	
   sale	
   could	
   also	
   be	
   classified	
   as	
   falling	
   under	
   §	
   1129(b)(2)(A)(iii).	
   	
   This	
   new	
   interpretation	
   of	
   the	
   “indubitable	
   equivalent”	
   has	
   drawn	
   much	
   debate	
   across	
   the	
   legal	
   arena	
   since	
   it	
   essentially	
   bypasses	
   the	
   hard	
   won	
   secured	
   creditors’	
   right	
   to	
   credit	
  bid.	
  	
  	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
    	
    17	
    CHAPTER	
  4:	
  THE	
  US	
  CREDIT	
  BIDDING	
  CRISIS	
  –	
  EVOLVING	
  LAWS?	
  	
   4.1	
  Introduction	
   Having	
   been	
   embedded	
   in	
   American	
   legislation	
   since	
   1978,	
   credit	
   bidding	
   has	
   had	
   ample	
  time	
  to	
  be	
  explored	
  and	
  discussed	
  by	
  US	
  case	
  law.	
  	
  However,	
  a	
  recent	
  line	
  of	
   cases	
  has	
  called	
  into	
  question	
  the	
  previously	
  unchallenged	
  right	
  entitling	
  creditors	
   to	
   credit	
   bid	
   on	
   their	
   secured	
   collateral	
   at	
   an	
   asset	
   sale.	
   	
   Kicking	
   off	
   this	
   new	
   interpretation	
   of	
   §	
   1129(b)(2)(A),	
   the	
   Fifth	
   Circuit	
   court	
   In	
   re	
   Pacific	
   Lumber	
   Co.	
   changed	
   the	
   rules	
   of	
   the	
   game,	
   and	
   as	
   such,	
   set	
   a	
   new	
   precedent	
   that	
   upset	
   the	
   previously	
   settled	
   right	
   to	
   credit	
   bid.64	
  	
   Instead	
   of	
   being	
   required	
   to	
   permit	
   the	
   secured	
   creditors	
   the	
   right	
   to	
   credit	
   bid	
   during	
   an	
   asset	
   sale	
   of	
   the	
   secured	
   collateral,	
   the	
   court	
   sided	
   with	
   the	
   debtors’	
   argument	
   that	
   allowed	
   them	
   to	
   use	
   a	
   loophole	
  provision	
  in	
  §	
  1129(b)(2)(A)(iii),	
  whereby	
  the	
  secured	
  creditors	
  need	
  only	
   be	
  provided	
  with	
  their	
  indubitable	
  equivalent	
  rather	
  than	
  the	
  right	
  to	
  credit	
  bid.	
  	
  	
   	
   Within	
  the	
  span	
  of	
  just	
  a	
  few	
  months,	
  the	
  Third	
  Circuit	
  was	
  presented	
  with	
  a	
  similar	
   case.	
  65	
  	
   The	
   Third	
   Circuit,	
   too,	
   was	
   persuaded	
   by	
   the	
   debtors’	
   argument	
   and	
   held	
   that	
  a	
  plan	
  could	
  be	
  “crammed	
  down”	
  involving	
  an	
  asset	
  sale	
  without	
  allowing	
  the	
   secured	
   creditors	
   the	
   right	
   to	
   credit	
   bid.	
   This	
   decision	
   affirmed	
   the	
   Fifth	
   Circuit’s	
   ruling.	
  	
  What	
  once	
  could	
  have	
  been	
  argued	
  as	
  a	
  mere	
  blemish	
  and	
  misinterpretation	
   of	
   the	
   statute	
   had	
   now	
   launched	
   into	
   a	
   completely	
   reworked	
   interpretation	
   of	
   the	
   statute	
   and,	
   consequently,	
   when	
   debtors	
   could	
   deny	
   secured	
   creditors	
   their	
   right	
   to	
   credit	
   bid.	
   	
   These	
   decisions,	
   however,	
   were	
   not	
   met	
   with	
   much	
   favour	
   from	
   legal	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   64	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12.	
   65	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11.	
   	
    18	
    experts	
   nor	
   academics	
   alike.	
   	
   Instead,	
   there	
   was	
   an	
   outpouring	
   of	
   literature	
   with	
   critics	
  arguing	
  that	
  both	
  the	
  Fifth	
  and	
  Third	
  Circuit	
  courts	
  had	
  gotten	
  it	
  wrong.66	
  	
   It	
   seemed	
  as	
  if	
  the	
  entire	
  bankruptcy	
  arena	
  was	
  left	
  with	
  an	
  unsettled	
  feeling.	
  	
  	
   	
   Two	
  years	
  later,	
  the	
  Seventh	
  Circuit	
  court	
  was	
  presented	
  with	
  the	
  same	
  dilemma.67	
  	
   In	
   an	
   interesting	
   turn	
   of	
   events,	
   the	
   court	
   found	
   that	
   the	
   debtors	
   could	
   not	
   rely	
   on	
   §	
   1129(b)(2)(A)(iii)	
  to	
  deny	
  secured	
  creditors	
  the	
  right	
  to	
  credit	
  bid	
  during	
  an	
  asset	
   sale,	
   upholding	
   the	
   Bankruptcy	
   Court’s	
   ruling	
   in	
   In	
   re	
   River	
   Road	
   Hotel	
   Partners,	
   LLC68	
  and	
   rejecting	
   the	
   Fifth	
   and	
   Third	
   Circuit’s	
   rulings	
   as	
   persuasive.	
  The	
   debtors	
   appealed	
  to	
  the	
  US	
  Supreme	
  Court.69	
  	
  	
   	
   Before	
   delving	
   into	
   the	
   details	
   of	
   the	
   US	
   Supreme	
   Court’s	
   decision,	
   which	
   ultimately	
   ended	
   the	
   matter,	
   the	
   cases	
   leading	
   up	
   to	
   this	
   pivotal	
   decision	
   are	
   first	
   reviewed	
   below.	
   	
   The	
   purpose	
   of	
   highlighting	
   these	
   relevant	
   cases,	
   aside	
   from	
   providing	
   a	
   better	
   understanding	
   of	
   the	
   US	
   judiciary’s	
   interpretation	
   of	
   credit	
   bidding,	
   is	
   to	
   illuminate	
   the	
   hazards	
   and	
   merits	
   of	
   incorporating	
   credit	
   bidding	
   into	
   legislation.	
   	
   If	
   Canada	
  were	
  to	
  implement	
  its	
  own	
  version	
  of	
  credit	
  bidding	
  in	
  a	
  legislative	
  format,	
   proper	
  consideration	
  should	
  be	
  given	
  to	
  jurisdictions	
  that	
  have	
  already	
  had	
  a	
  long	
   established	
   framework.	
   	
   The	
   US,	
   which	
   has	
   this	
   framework	
   in	
   place,	
   and	
   which	
   is	
   also	
   responsible	
   for	
   the	
   recent	
   inclusion	
   of	
   credit	
   bidding	
   in	
   Canadian	
   insolvency	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   66	
  See	
  Brookner,	
  supra	
  note	
  36;	
  Merriam	
  Mikhail,	
  “Extra!	
  Extra!	
  :	
  Philadelphia	
  Newspaper	
    Jeopardizes	
  Credit	
  Bidding”	
  (2011)	
  28	
  Emory	
  Bankr	
  Dev	
  J	
  135;	
  Barney,	
  supra	
  note	
  8.	
   67	
  River	
  Road,	
  supra	
  note	
  12.	
   68	
  In	
  re	
  River	
  Road	
  Hotel	
  Partners,	
  LLC,	
  2010	
  Bankr	
  LEXIS	
  5933	
  (Bankr	
  ND	
  Ill	
  2010)	
  [In	
  re	
  River	
  Road	
   Hotel	
  Partners,	
  LLC].	
   69	
  RadLAX	
  Gateway	
  Hotel,	
  LLC	
  v	
  Amalgamated	
  Bank,	
  132	
  US	
  2065	
  (2012)	
  [RadLAX	
  Gateway].	
  	
    	
    19	
    proceedings,	
   provides	
   an	
   exemplary	
   opportunity	
   to	
   review	
   such	
   issues	
   that	
   arise	
   from	
  detailed	
  legislation.	
   	
   4.2	
  In	
  re	
  Pacific	
  Lumber	
  Co.	
  –	
  Mutation	
  Occurs	
  	
   As	
  previously	
  mentioned,	
  In	
  re	
  Pacific	
  Lumber	
  Co.	
  marked	
  the	
  critical	
  turning	
  point	
   in	
   the	
   United	
   States’	
   judiciary	
   interpretation	
   of	
   credit	
   bidding	
   and	
   spurred	
   the	
   discourse	
  now	
  seen	
  in	
  the	
  scholarly	
  realm.	
  	
  It	
  signaled	
  the	
  new	
  age	
  of	
  credit	
  bidding,	
   or	
  perhaps	
  a	
  more	
  apt	
  description	
  would	
  be	
  to	
  say	
  that	
  it	
  commenced	
  the	
  downfall	
   of	
   credit	
   bidding.	
   	
   The	
   US	
   legislature	
   had	
   implanted	
   this	
   carefully	
   constructed	
   provision	
   into	
   the	
   US	
  Bankruptcy	
  Code,	
   intending	
   to	
   prevent	
   the	
   undervaluation	
   of	
   collateral	
  as	
  seen	
  in	
  the	
  In	
   re	
  Pine	
   Gate	
  case.	
  	
  Yet,	
  In	
   re	
   Pacific	
   Lumber	
   Co.	
  appeared	
   to	
   undermine	
   the	
   legislature’s	
   intention	
   to	
   afford	
   secured	
   creditors	
   this	
   additional	
   protection.	
   	
   Whereas,	
   historically,	
   secured	
   creditors	
   were	
   entitled	
   to	
   credit	
   bid	
   in	
   asset	
   sales	
   that	
   purported	
   to	
   sell	
   the	
   creditors’	
   collateral	
   free	
   and	
   clear	
   of	
   liens,	
   debtors	
   could	
   now	
   deny	
   secured	
   creditors	
   the	
   right	
   to	
   credit	
   bid	
   by	
   arguing	
   that	
   cram	
   down	
   plans	
   involving	
   the	
   sale	
   of	
   creditors’	
   secured	
   collateral	
   could	
   be	
   approved	
  under	
  §	
  1129(b)(2)(A)(iii)	
  70	
  and	
  not	
  the	
  traditional	
  §	
  1129(b)(2)(A)(ii).	
   	
   The	
  facts	
  of	
  the	
  case	
  are	
  as	
  follows.	
  	
  Pacific	
  Lumber	
  Company	
  and	
  Scotia	
  Pacific	
  LLC,	
   abbreviated	
   by	
   the	
   courts	
   to	
   “Palco”	
   and	
   “Scopac,”	
   respectively,	
   were	
   affiliated	
   entities	
   involved	
   in	
   the	
   redwood	
   timber	
   industry.71	
  	
   Palco	
   owned	
   and	
   operated	
   a	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   70	
  11	
  USC	
  §1129(b)(2)(A)(iii)	
  (2012)	
  (“cramdown”	
  plan	
  may	
  be	
  approved	
  under	
  this	
  subsection	
    providing	
  that	
  the	
  secured	
  creditor	
  receives	
  an	
  “indubitable	
  equivalent”	
  of	
  their	
  secured	
  collateral).	
   71	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  236.	
    	
    20	
    power	
  plant,	
  sawmill,	
  the	
  town	
  of	
  Scotia,	
  California	
  and	
  Scopac,	
  a	
  Delaware	
  special	
   purpose	
   entity. 72 	
  	
   In	
   1998,	
   Palco	
   had	
   transferred	
   200,000	
   acres	
   of	
   redwood	
   timberlands	
   to	
   Scopac	
   to	
   facilitate	
   the	
   sale	
   of	
   $867.2	
   million	
   in	
   notes	
   secured	
   by	
   the	
   timberlands	
   and	
   other	
   assets	
   owned	
   by	
   Scopac.73	
  	
   On	
   January	
   18,	
   2007,	
   in	
   the	
   Southern	
  District	
  of	
  Texas,	
  Palco,	
  Scopac	
  and	
  four	
  additional	
  affiliated	
  debtors	
  filed	
   separate	
   petitions	
   under	
   Chapter	
   11	
   of	
   the	
   Bankruptcy	
   Code.74	
  	
   The	
   six	
   petitions	
   were	
   procedurally	
   consolidated	
   by	
   the	
   Bankruptcy	
   Court.75	
  At	
   the	
   date	
   of	
   filing,	
   Palco’s	
   assets	
   had	
   an	
   estimated	
   value	
   of	
   $110	
   million,	
   against	
   which	
   Marathon	
   Structured	
   Finance	
   (“Marathon”)	
   held	
   a	
   secured	
   claim	
   of	
   $160	
   million.76	
  	
   Scopac	
   owed	
  its	
  Noteholders	
  $740	
  million	
  in	
  principal	
  and	
  interest	
  on	
  the	
  timberland	
  notes,	
   in	
   addition	
   to	
   the	
   $36.2	
   million	
   owed	
   to	
   Bank	
   of	
   America	
   on	
   a	
   secured	
   line	
   of	
   credit.77	
  	
   The	
   Noteholders	
   were	
   represented	
   by	
   the	
   Bank	
   of	
   New	
   York	
   during	
   the	
   bankruptcy	
  cases	
  pursuant	
  to	
  an	
  indenture	
  agreement	
  (“Indenture	
  Trustee”).78	
  	
   	
   Various	
  plans	
  of	
  reorganization	
  were	
  filed,	
  with	
  the	
  court	
  ultimately	
  finding	
  the	
  joint	
   Mendocino	
   Redwood	
   Company	
   (“MRC”)	
   and	
   Marathon	
   plan	
   to	
   be	
   confirmable,	
   the	
   former	
   entity	
   a	
   competitor	
   of	
   Palco.79 	
  	
   Under	
   the	
   MRC/Marathon	
   plan,	
   the	
   six	
   affiliated	
   entities	
   would	
   be	
   dissolved,	
   intercompany	
   debts	
   cancelled	
   and	
   two	
   new	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   72	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  236.	
   73	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  236.	
   74	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  236.	
   75	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  236.	
   76	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  236.	
   77	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  237.	
   78	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  236-­‐237.	
   79	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  237.	
   	
    21	
    companies	
   would	
   be	
   created	
   from	
   the	
   ashes.80	
  	
   Substantially	
   all	
   of	
   Palco’s	
   assets	
   would	
   be	
   transferred	
   to	
   Townco,	
   whereas	
   the	
   timberlands	
   and	
   sawmill	
   would	
   be	
   transferred	
   to	
   Newco.81	
  	
   The	
   plan	
   contributed	
   $580	
   million	
   towards	
   the	
   claims	
   against	
   Scopac.82	
  	
   In	
   addition,	
   Marathon	
   would	
   convert	
   its	
   $160	
   million	
   in	
   secured	
   claims	
   against	
   Palco	
   to	
   equity,	
   which	
   would	
   enable	
   Marathon	
   to	
   claim	
   ownership	
   over	
  Townco,	
  a	
  15%	
  share	
  in	
  Newco	
  and	
  a	
  new	
  note	
  in	
  the	
  amount	
  of	
  the	
  sawmill’s	
   working	
  capital.83	
   	
   The	
   proposed	
   plan	
   created	
   12	
   classes	
   of	
   interests.84	
  	
   While	
   two	
   impaired	
   classes	
   voted	
   in	
   favour	
   of	
   the	
   plan,	
   thus	
   making	
   the	
   plan	
   confirmable,	
   MRC	
   and	
   Marathon	
   still	
  had	
  to	
  “cram	
  down”	
  the	
  plan	
  on	
  dissenting	
  classes,	
  mainly	
  the	
  Noteholders,	
  in	
   accordance	
  with	
  §	
  1129(b).85	
  	
  	
   	
   Of	
   primary	
   importance	
   for	
   the	
   confirmation	
   of	
   the	
   plan	
   was	
   the	
   valuation	
   of	
   the	
   timberlands	
   securing	
   the	
   Noteholders’	
   claim.	
   	
   After	
   extensive	
   testimony,	
   the	
   court	
   valued	
   the	
   timberlands	
   at	
   $510	
   million,	
   stating	
   that	
   the	
   valuation	
   was	
   the	
   “indubitable	
   equivalent”	
   of	
   the	
   Noteholders’	
   secured	
   claim	
   on	
   the	
   timberlands.86	
  	
   Subtracting	
   an	
   additional	
   $3.6	
   million	
   on	
   non-­‐timberlands	
   collateral,	
   the	
   court’s	
   valuation	
   of	
   the	
   timberlands	
   resulted	
   in	
   a	
   portion	
   of	
   the	
   Noteholders’	
   claim	
   being	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   80	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  237.	
   81	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  237.	
   82	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  237.	
   83	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  237.	
   84	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  238.	
   85	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  238.	
   86	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  238.	
   	
    22	
    deemed	
  as	
  unsecured.	
  	
  The	
  Bankruptcy	
  Court	
  then	
  confirmed	
  the	
  plan	
  with	
  minor	
   alterations.87	
  	
   The	
  Indenture	
  Trustee	
  and	
  a	
  few	
  individual	
  Noteholders	
  moved	
  for	
  a	
   direct	
  appeal	
  to	
  the	
  Fifth	
  Circuit,	
  which	
  was	
  granted.88	
   	
   Amongst	
  the	
  several	
  issues	
  on	
  appeal,	
  the	
  Indenture	
  Trustee	
  asserted	
  that	
  the	
  plan	
   “violate[d]	
   the	
   absolute	
   priority	
   rule	
   by	
   paying	
   junior	
   Palco	
   and	
   Scopac	
   creditors	
   with	
   the	
   Noteholders’	
   collateral”	
   and	
   that	
   the	
   plan	
   was	
   not	
   “‘fair	
   and	
   equitable’	
   because	
   the	
   plan	
   sold	
   the	
   Timberlands	
   collateral	
   without	
   providing	
   the	
   Noteholders	
   the	
  right	
  to	
  credit	
  bid.”89	
  	
   	
   The	
   Fifth	
   Circuit	
   recognized	
   that	
   the	
   absolute	
   priority	
   rule	
   enforces	
   a	
   strict	
   hierarchy	
   of	
   creditor	
   classes’	
   rights,	
   defined	
   by	
   Collier	
   on	
   Bankruptcy	
   as	
   to	
   mean	
   that	
  “a	
  plan	
  of	
  reorganization	
  may	
  not	
  allocate	
  any	
  property	
  whatsoever	
  to	
  a	
  junior	
   class	
   on	
   account	
   of	
   their	
   interests	
   or	
   claims	
   in	
   a	
   debtor	
   unless	
   such	
   senior	
   classes	
   receive	
   property	
   equal	
   in	
   value	
   to	
   the	
   full	
   amount	
   of	
   their	
   allowed	
   claims…”90	
  	
   Of	
   parallel	
  importance	
  is	
  §	
  1129(b)	
  of	
  the	
  Bankruptcy	
   Code,	
  which	
  states	
  that	
  the	
  plan	
   must	
   be	
   “fair	
   and	
   equitable”	
   with	
   respect	
   to	
   impaired	
   classes.	
   	
   Thus,	
   from	
   these	
   provisions	
  it	
  logically	
  follows	
  that	
  a	
  plan	
  could	
  not	
  be	
  fair	
  and	
  equitable	
  if	
  it	
  violates	
   the	
  absolute	
  priority	
  rule.	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   87	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  239.	
   88	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  239.	
   89	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  239.	
   90	
  William	
  Miller	
  Collier,	
  Collier	
  on	
  Bankruptcy,	
  15th	
  ed	
  by	
  Lawrence	
  P.	
  King	
  (New	
  York:	
  Matthew	
   Bender,	
  2008)	
  at	
  1192-­‐93,	
  cited	
  in	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  244,	
  n	
  20.	
   	
    23	
    The	
   Fifth	
   Circuit	
   then	
   turned	
   to	
   the	
   Indenture	
   Trustee’s	
   “fair	
   and	
   equitable”	
   argument.	
   	
   The	
   Indenture	
   Trustee	
   argued	
   that	
   the	
   Noteholders	
   were	
   denied	
   their	
   right	
  to	
  credit	
  bid	
  pursuant	
  to	
  §	
  1129(b)(2)(A)(ii),	
  which	
  entitles	
  secured	
  creditors	
   the	
   right	
   to	
   credit	
   bid	
   if	
   their	
   secured	
   property	
   is	
   to	
   be	
  sold	
   free	
   and	
   clear	
   of	
   liens.91	
  	
   The	
   Bankruptcy	
   Court	
   had	
   designated	
   the	
   timberlands	
   transaction	
   as	
   a	
   “transfer”	
   rather	
   than	
   a	
   “sale,”	
   which	
   enabled	
   the	
   Marathon/MRC	
   plan	
   to	
   side-­‐step	
   the	
   Noteholders’	
   right	
   to	
   credit	
   bid. 92 	
  	
   The	
   Fifth	
   Circuit	
   sided	
   with	
   the	
   appellants	
   (Indenture	
  Trustee	
  and	
  the	
  individual	
  Noteholders)	
  and	
  found	
  that	
  the	
  Bankruptcy	
   Court	
   erred	
   in	
   this	
   decision	
   ruling	
   that	
   the	
   exchange	
   of	
   cash	
   and	
   debt	
   by	
   MRC/Marathon	
   in	
   return	
   for	
   title	
   in	
   the	
   debtors’	
   assets	
   was	
   indeed	
   a	
   sale.93	
  	
   The	
   Fifth	
  Circuit	
  then	
  went	
  on	
  to	
  find	
  that	
  although	
  the	
  transaction	
  is	
  considered	
  a	
  sale,	
   it	
  does	
  not	
  necessarily	
  mean	
  that	
  §	
  1129(b)(2)(A)(ii)	
  applies.94	
  	
  	
   	
   The	
  Fifth	
  Circuit	
  reviewed	
  the	
  statutory	
  language	
  of	
  §	
  1129(b)(2)(A):	
   (A)	
  With	
  respect	
  to	
  a	
  class	
  of	
  secured	
  claims,	
  the	
  plan	
  provides—	
  	
   (i)	
  (I)	
  that	
  the	
  holders	
  of	
  such	
  claims	
  retain	
  the	
  liens	
  securing	
   such	
   claims,	
   whether	
   the	
   property	
   subject	
   to	
   such	
   liens	
   is	
   retained	
  by	
  the	
  debtor	
  or	
  transferred	
  to	
  another	
  entity,	
  to	
  the	
   extent	
  of	
  the	
  allowed	
  amount	
  of	
  such	
  claims;	
  and	
  (II)	
  that	
  each	
   holder	
   of	
   a	
   claim	
   of	
   such	
   class	
   receive	
   on	
   account	
   of	
   such	
   claim	
   deferred	
  cash	
  payments	
  totaling	
  at	
  least	
  the	
  allowed	
  amount	
  of	
   such	
  claim,	
  of	
  a	
  value,	
  as	
  of	
  the	
  effective	
  date	
  of	
  the	
  plan,	
  of	
  at	
   least	
  the	
  value	
  of	
  such	
  holder’s	
  interest	
  in	
  the	
  estate’s	
  interest	
   in	
  such	
  property;	
   (ii)	
   for	
   the	
   sale,	
   subject	
   to	
   section	
   363(k)	
   of	
   this	
   title,	
   of	
   any	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   91	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  245.	
   92	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  245.	
   93	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  245.	
   94	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  245.	
   	
    24	
    property	
   that	
   is	
   subject	
   to	
   the	
   liens	
   securing	
   such	
   claims,	
   free	
   and	
  clear	
  of	
  such	
  liens,	
  with	
  such	
  liens	
  to	
  attach	
  to	
  the	
  proceeds	
   of	
  such	
  sale,	
  and	
  the	
  treatment	
  of	
  such	
  liens	
  on	
  proceeds	
  under	
   clause	
  (i)	
  or	
  (iii)	
  of	
  this	
  subparagraph;	
  or	
  	
   (iii)	
   for	
   the	
   realization	
   by	
   such	
   holders	
   of	
   the	
   indubitable	
   equivalent	
  of	
  such	
  claims.95	
   	
   The	
   court	
   viewed	
   the	
   use	
   of	
   the	
   word	
   “or”	
   in	
   subsection	
   (ii)	
   as	
   meaning	
   that	
   the	
   three	
   subsections	
   are	
   alternatives.96	
  	
   Jones,	
   C.J.,	
   delivering	
   reasons	
   for	
   the	
   court,	
   stated	
   that	
   the	
   use	
   of	
   the	
   word	
   “includes”	
   in	
   §	
   1129(b)(2)	
   97 	
  precludes	
   the	
   subsections	
   from	
   being	
   exhaustive.98	
  	
   She	
   rejected	
   the	
   appellants’	
   argument	
   that	
   a	
   broad	
   interpretation	
   of	
   subsection	
   (iii)	
   renders	
   subsection	
   (ii)	
   as	
   superfluous,	
   indicating	
   that	
   there	
   may	
   be	
   circumstances	
   in	
   which	
   an	
   asset	
   sale	
   may	
   entitle	
   secured	
   creditors	
   the	
   opportunity	
   to	
   credit	
   bid	
   but	
   not	
   always.99	
  	
   Given	
   the	
   non-­‐ exhaustive	
   nature	
   of	
   the	
   subsections,	
   the	
   court	
   stated	
   that	
   treating	
   these	
   subsections	
   as	
   “compartmentalized	
   alternatives”	
   would	
   be	
   inconsistent	
   and	
   concluded	
   that	
   the	
   MRC/Marathon	
   plan’s	
   cash	
   payment	
   to	
   the	
   lenders	
   could	
   be	
   categorized	
   as	
   meeting	
   the	
   “indubitable	
   equivalent”	
   requirement	
   in	
   subsection	
   (iii).100	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   95	
  11	
  USC	
  §1129(b)(2)(A)	
  (2012)	
  [emphasis	
  added].	
   96	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  245.	
   97	
  11	
  USC	
  §1129(b)(2)	
  (2012)	
  (where	
  the	
  statute	
  states	
  that	
  the	
  “condition	
  that	
  a	
  plan	
  be	
  fair	
  and	
   equitable	
  includes	
  the	
  following	
  requirements…”[emphasis	
  added]). 	
   98	
  11	
  USC	
  §102(3)	
  (2012)	
  (defines	
  the	
  term	
  “includes”	
  to	
  not	
  be	
  limiting	
  in	
  nature). 99	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  245.	
   100 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  245-­‐246.	
   	
    25	
    Given	
   that	
   the	
   Fifth	
   Circuit	
   had	
   found	
   that	
   an	
   asset	
   sale,	
   which	
   denied	
   secured	
   creditors	
  the	
  right	
  to	
  credit,	
  could	
  be	
  approved	
  under	
  subsection	
  (iii),	
  the	
  next	
  issue	
   to	
   consider	
   was	
   whether	
   the	
   proposed	
   payment	
   under	
   then	
   plan	
   was	
   sufficient	
   to	
   constitute	
  the	
  “indubitable	
  equivalent”	
  required	
  by	
  subsection	
  (iii).	
  	
  The	
  Bankruptcy	
   Court	
   had	
   originally	
   heard	
   expert	
   testimony	
   as	
   to	
   the	
   appropriate	
   valuation	
   of	
   the	
   assets,	
   and	
   eventually	
   determined	
   the	
   assets	
   to	
   be	
   worth	
   $510	
   million.101	
  	
   This	
   appraisal	
  was	
  substantially	
  less	
  than	
  the	
  value	
  of	
  the	
  debt	
  owed.	
  	
  The	
  lenders	
  argued	
   that	
  by	
  refusing	
  the	
  right	
  to	
  credit	
  bid,	
  they	
  did	
  not	
  in	
  fact	
  receive	
  their	
  indubitable	
   equivalent	
  by	
  forfeiting	
  potential	
  increases	
  in	
  the	
  collateral’s	
  valuation.102	
  	
   	
   The	
  Fifth	
  Circuit	
  wrestled	
  with	
  the	
  interpretation	
  of	
  indubitable	
  equivalent,	
  stating	
   that	
   “[w]hat	
   measures	
   constitute	
   the	
   indubitable	
   equivalent	
   of	
   the	
   value	
   of	
   the	
   [lenders’]	
   collateral	
   are	
   rarely	
   explained	
   in	
   caselaw,	
   because	
   most	
   contested	
   reorganization	
   plans	
   follow	
   familiar	
   paths	
   outlined	
   in	
   Clauses	
   (i)	
   and	
   (ii).”103 	
  	
   This	
   statement	
   should	
   have	
   given	
   the	
   Fifth	
   Circuit	
   pause	
   to	
   reconsider	
   if	
   allowing	
   the	
   plan	
   to	
   proceed	
   under	
   subsection	
   (iii)	
   was	
   indeed	
   the	
   right	
   decision.	
   	
   After	
   considering	
   the	
   literature	
   regarding	
   the	
   interpretation	
   of	
   “indubitable	
   equivalent,”104	
  Jones,	
   C.J.	
   found	
   that	
   regardless	
   of	
   its	
   ambiguity,	
   the	
   indubitable	
   equivalent	
   subsection,	
   and	
   subsection	
   (i)	
   and	
   (ii),	
   all	
   serve	
   to	
   protect	
   the	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   101 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  238.	
   102 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  247.	
   103 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  246.	
   104 	
  See	
  Kenneth	
  N.	
  Klee,	
  “All	
  You	
  Ever	
  Wanted	
  to	
  Know	
  About	
  Cram	
  Down	
  Under	
  the	
  New	
    Bankruptcy	
  Code”	
  (1979)	
  53	
  Am	
  Bankr	
  LJ	
  133	
  (“[t]he	
  legislative	
  history	
  states	
  that	
  abandonment	
  of	
   the	
  collateral	
  to	
  the	
  class	
  would	
  satisfy	
  [the	
  indubitable	
  equivalent],	
  as	
  would	
  a	
  replacement	
  lien	
  on	
   similar	
  collateral”	
  at	
  156).	
    	
    26	
    “repayment	
  of	
  principal	
  and	
  the	
  time	
  value	
  of	
  money.”105	
  	
   By	
  offering	
  a	
  reasonable	
   cash	
  payment	
  to	
  the	
  Noteholders,	
  Jones,	
  C.J.	
  ruled	
  that	
  the	
  “indubitable	
  equivalent”	
   requirement	
  of	
  the	
  plan	
  was	
  fulfilled.	
  	
  	
   	
   In	
   circumstances	
   where	
   a	
   sale	
   involves	
   selling	
   an	
   asset	
   free	
   and	
   clear	
   of	
   attachments,	
  credit	
  bidding	
  generally	
  provides	
  the	
  secured	
  creditors	
  with	
  recourse	
   when	
   they	
   feel	
   that	
   the	
   asset	
   is	
   being	
   undervalued.	
   	
   In	
   this	
   case,	
   the	
   Noteholders	
   argued	
   that	
   the	
   plan	
   failed	
   to	
   meet	
   the	
   “indubitable	
   equivalent”	
   requirement	
   because	
   the	
   judicial	
   valuation	
   determined	
   through	
   expert	
   testimony	
   was	
   significantly	
   lacking	
   and	
   that	
   “market	
   valuation”	
   would	
   better	
   determine	
   the	
   real	
   value	
   of	
   the	
   assets.106	
  	
   The	
   court	
   disagreed,	
   finding	
   that	
   while	
   some	
   circumstances	
   may	
  call	
  for	
  a	
  sale	
  via	
  public	
  auction,107	
  the	
   Bankruptcy	
  Court	
  had	
  heard	
  sufficient	
   expert	
   testimonies	
   to	
   be	
   able	
   to	
   make	
   a	
   judicial	
   valuation.	
   	
   The	
   Fifth	
   Circuit	
   found	
   that	
   the	
   proposed	
   plan’s	
   cash	
   payment	
   would	
   satisfy	
   the	
   lenders’	
   allowed	
   secured	
   claim,	
   discrediting	
   the	
   lenders’	
   argument	
   on	
   the	
   basis	
   that	
   the	
   Bankruptcy	
  Code	
   is	
   meant	
   to	
   protect	
   the	
   allowed	
   secured	
   claim	
   and	
   not	
   the	
   “upside	
   potential”	
   of	
   possible	
  increases	
  in	
  asset	
  valuation.108 	
  	
   	
   The	
   court	
   seems	
   to	
   have	
   missed	
   the	
   mark	
   in	
   its	
   interpretation	
   of	
   subsection	
   (ii)	
   and	
   (iii).	
   	
   Congress	
   outlined	
   three	
   circumstances	
   in	
   which	
   a	
   plan	
   may	
   be	
   “cram	
   downed”	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   105 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  246.	
   106 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  ibid	
  at	
  247.	
   107 	
  See	
  Bank	
  of	
  America	
  National	
  Trust	
  &	
  Savings	
  Association	
  v	
  203	
  N.	
  LaSalle	
  Street	
  Partnership,	
  526	
   US	
  434	
  (1998).	
   108 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  247.	
   	
    27	
    dissenting	
  creditors.	
  	
  While	
  the	
  Bankruptcy	
  Code	
  specifies	
  that	
  the	
  use	
  of	
  “include”	
  is	
   not	
   limiting	
   in	
   nature	
   in	
   regards	
   to	
   the	
   overall	
   interpretation	
   of	
   §	
   1129(b)(2),	
   the	
   court	
   erred	
   in	
   its	
   approach	
   to	
   understanding	
   the	
   meaning	
   of	
   “limiting,”	
   instead	
   confusing	
  limiting	
  to	
  “overlapping.”	
  	
  A	
  delineated	
  list	
  identifying	
  key	
  characteristics	
   of	
   proposed	
   plans	
   does	
   not	
   preclude	
   other	
   plans	
   from	
   being	
   approved	
   that	
   do	
   not	
   meet	
  the	
  criteria	
  in	
  subsections	
  (i)-­‐(iii).	
  	
  However,	
  a	
  plan	
  that	
  does	
  meet	
  the	
  criteria	
   found	
  within	
  one	
  of	
  the	
  outlined	
  subsections,	
  such	
  as	
  an	
  asset	
  sale	
  free	
  and	
  clear	
  of	
   liens	
  in	
  subsection	
  (ii),	
  should	
  then	
  be	
  subject	
  to	
  the	
  delineated	
  criteria.	
  	
  It	
  defeats	
   the	
   purpose	
   of	
   listing	
   any	
   criteria	
   at	
   all	
   if	
   the	
   plan	
   can	
   then	
   be	
   subsequently	
   approved	
  under	
  subsection	
  (iii).	
  	
  Thus,	
  upon	
  deciding	
  whether	
  a	
  plan	
  meets	
  the	
  “fair	
   and	
  equitable”	
  standard,	
  the	
  court	
  should	
  first	
  identify	
  if	
  the	
  proposed	
  plan	
  falls	
  into	
   one	
   of	
   the	
   three	
   outlined	
   subsections	
   and	
   proceed	
   from	
   there.	
   	
   In	
   this	
   particular	
   case,	
   the	
   proposed	
   plan	
   clearly	
   met	
   the	
   criteria	
   listed	
   in	
   subsection	
   (ii),	
   which	
   purported	
   to	
   sell	
   the	
   secured	
   assets	
   free	
   and	
   clear	
   of	
   liens.	
   	
   The	
   circumstances	
   in	
   which	
   secured	
   creditors	
   are	
   entitled	
   to	
   credit	
   bid	
   are	
   clearly	
   outlined	
   in	
   §	
   363(k),	
   where	
  an	
  asset	
  is	
  sold	
  free	
  and	
  clear	
  of	
  liens.	
  	
  	
  	
  The	
  court	
  acknowledged	
  that	
  the	
  plan	
   did	
   constitute	
   a	
   sale	
   and	
   yet	
   bypassed	
   §	
   363(k)	
   by	
   finding	
   that	
   the	
   plan	
   could	
   be	
   approved	
   under	
   §	
   1129(b)(2)(A)(iii).	
   	
   If	
   Congress	
   would	
   go	
   so	
   far	
   as	
   to	
   define	
   conditions,	
  or	
  alternatives,	
  under	
  which	
  credit	
  bidding	
  should	
  be	
  allowed,	
  it	
  would	
   seem	
   contradictory	
   that	
   they	
   would	
   then	
   include	
   another	
   provision	
   that	
   would	
   constitute	
  a	
  loophole	
  unless	
  the	
  court	
  erred	
  in	
  interpreting	
  the	
  provision	
  to	
  broadly.	
  	
   In	
   rejecting	
   the	
   lenders’	
   argument	
   that	
   approving	
   the	
   plan	
   renders	
   subsection	
   (ii)	
   superfluous,	
   the	
   court	
   glossed	
   over	
   the	
   argument	
   without	
   providing	
   any	
   solid	
    	
    28	
    evidence	
  to	
  support	
  its	
  conclusion.	
  	
  The	
  purpose	
  behind	
  this	
  case	
  discussion	
  is	
  not	
   merely	
  to	
  highlight	
  the	
  court’s	
  erroneous	
  interpretation	
  of	
  the	
  statute,	
  but	
  rather,	
  to	
   point	
   out	
   that	
   no	
   legislation	
   is	
   free	
   from	
   the	
   potential	
   to	
   be	
   misinterpreted,	
   a	
   discussion	
  that	
  will	
  be	
  returned	
  to	
  in	
  Chapter	
  7.	
  	
  	
   	
   4.3	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC	
  –	
  A	
  New	
  Species	
  of	
  Credit	
  Bidding?	
   4.3.1	
  Background	
   Six	
  months	
  after	
  the	
  Fifth	
  Circuit’s	
  decision	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  the	
  Third	
  Circuit	
   court	
  soon	
  faced	
  the	
  same	
  dilemma	
  in	
  having	
  to	
  decide	
  whether	
  a	
  debtor	
  could	
  sell	
   assets	
   free	
   and	
   clear	
   of	
   liens	
   without	
   allowing	
   the	
   secured	
   creditor	
   the	
   ability	
   to	
   credit	
  bid.	
  	
  As	
  in	
  the	
  prior	
  Fifth	
  Circuit	
  case,	
  the	
  debtor	
  was	
  attempting	
  to	
  proceed	
   with	
   the	
   proposed	
   plan	
   under	
   §	
   1129(b)(2)(A)(iii),	
   which	
   calls	
   for	
   the	
   plan	
   to	
   provide	
  the	
  “indubitable	
  equivalent”	
  to	
  the	
  creditor.	
   	
   The	
   debtors,	
   comprised	
   of	
   a	
   group	
   of	
   entities	
   including	
   the	
   parent	
   company	
   PMH	
   Holdings,	
   owned	
   and	
   operated	
   the	
   newspapers	
   Philadelphia	
   Inquirer	
   and	
   Philadelphia	
  Daily	
  News,	
  in	
  addition	
  to	
  an	
  online	
  publication.	
  	
  The	
  debtors	
  purchased	
   these	
  assets	
  for	
  $515	
  million	
  in	
  July	
  2006,	
  of	
  which	
  $295	
  million	
  came	
  in	
  the	
  form	
  of	
   a	
  loan	
  from	
  a	
  lender	
  syndicate	
  (“lenders”).	
  Approximately	
  2	
  years	
  later,	
  the	
  debtors	
   filed	
  petitions	
  under	
  Chapter	
  11	
  of	
  the	
  Bankruptcy	
  Code	
  and	
  later	
  filed	
  a	
  joint	
  plan	
  of	
   reorganization	
   that	
   included	
   assets	
   being	
   sold	
   free	
   and	
   clear	
   of	
   any	
   liens.	
   	
   At	
   the	
    	
    29	
    time	
  the	
  Third	
  Circuit	
  heard	
  the	
  case,	
  the	
  value	
  of	
  the	
  lenders’	
  loan	
  had	
  increased	
  to	
   $318	
  million.109	
  	
  	
   	
   Under	
  the	
  proposed	
  plan,	
  the	
  assets	
  were	
  to	
  be	
  sold	
  at	
  a	
  public	
  auction	
  with	
  the	
  help	
   of	
   a	
   “stalking	
   horse	
   bidder,”	
   Philly	
   Papers,	
   LLC.	
   	
   The	
   majority	
   interest	
   of	
   Philly	
   Papers,	
   LLC,	
   was	
   held	
   by	
   two	
   entities,	
   which	
   also	
   held	
   50%	
   of	
   the	
   equity	
   in	
   PMH	
   Holdings.	
   	
   If	
   the	
   stalking	
   horse	
   bid	
   was	
   successful,	
   the	
   sale	
   would	
   generate	
   $37	
   million	
   for	
   the	
   lenders	
   in	
   cash	
   and	
   the	
   lenders	
   would	
   additionally	
   receive	
   the	
   debtors’	
  headquarters	
  valued	
  at	
  $29.5	
  million.110	
  	
  	
   	
   On	
   August	
   28,	
   2009,	
   the	
   debtors	
   brought	
   a	
   motion	
   for	
   approval	
   of	
   the	
   bidding	
   process,	
   which	
   was	
   to	
   preclude	
   the	
   lenders	
   from	
   credit	
   bidding.	
   	
   The	
   Bankruptcy	
   Court	
   denied	
   the	
   motion	
   finding	
   that	
   the	
   plan	
   was	
   structured	
   as	
   a	
   sale	
   under	
   §	
   1129(b)(2)(A)(ii),	
   and	
   thereby	
   required	
   that	
   the	
   lenders	
   have	
   the	
   right	
   to	
   credit	
   bid.111	
  	
   The	
  District	
  Court	
  overturned	
  the	
  ruling	
  stating	
  that	
  the	
  interpretation	
  of	
  §	
   1129(b)(2)(A)(iii)	
   was	
   broad	
   enough	
   to	
   encompass	
   a	
   plan	
   that	
   denied	
   credit	
   bidding	
   provided	
   that	
   the	
   plan	
   offered	
   the	
   secured	
   creditors	
   an	
   “indubitable	
   equivalent.”112	
  	
  The	
  case	
  was	
  subsequently	
  appealed	
  to	
  the	
  Third	
  Circuit	
  court.	
  	
  	
   	
   The	
   lenders	
   presented	
   three	
   arguments	
   to	
   support	
   their	
   right	
   to	
   credit	
   bid,	
   first	
   arguing	
   that	
   the	
   proper	
   statutory	
   interpretation	
   precluded	
   the	
   debtor	
   from	
   denying	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   109 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  301.	
  	
   110 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  302.	
   111 112  	
    In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  2009	
  Bankr	
  LEXIS	
  3167	
  (Bankr	
  ED	
  Pa	
  2009)	
  [Philadelphia]. In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  418	
  BR	
  548	
  (ED	
  Pa	
  2009).  30	
    the	
   creditors	
   the	
   right	
   to	
   credit	
   bid.	
   	
   The	
   second	
   argument	
   turned	
   on	
   the	
   interpretation	
   of	
   “indubitable	
   equivalent,”	
   which	
   the	
   lenders	
   contended	
   as	
   being	
   ambiguous.	
  	
  Finally,	
  the	
  lenders	
  argued	
  that	
  denying	
  the	
  lenders	
  the	
  right	
  to	
  credit	
   bid	
  was	
  inconsistent	
  with	
  other	
  provisions	
  in	
  the	
  Bankruptcy	
  Code.113	
  	
   	
   4.3.2	
  The	
  Majority	
  Opinion	
  	
   Fisher,	
   C.J.,	
   writing	
   for	
   the	
   majority	
   of	
   the	
   Third	
   Circuit,	
   reviewed	
   the	
   statutory	
   language	
   of	
   the	
   three	
   alternatives	
   as	
   set	
   out	
   in	
   §	
   1129(b)(2)(A).	
   	
   Setting	
   out	
   the	
   basics	
  of	
  statutory	
  interpretation,	
  Fisher,	
  C.J.	
  began	
  by	
  stating	
  that	
  the	
  first	
  course	
  of	
   action	
   in	
   interpreting	
   any	
   provision	
   is	
   to	
   look	
   at	
   the	
   statutory	
   language.114	
  	
   If	
   the	
   language	
   should	
   prove	
   to	
   be	
   unambiguous,	
   the	
   statutory	
   analysis	
   ends	
   there.115	
  	
   Fisher,	
   C.J.	
   noted	
   that	
   the	
   use	
   of	
   the	
   word	
   “or”	
   means	
   that	
   the	
   three	
   alternatives	
   are	
   to	
   be	
   construed	
   as	
   operating	
   independently	
   of	
   each	
   other.	
   	
   A	
   debtor	
   is	
   merely	
   obligated	
  to	
  satisfy	
  one	
  of	
  the	
  alternatives	
  and	
  is	
  not	
  compelled	
  to	
  satisfy	
  all	
  three	
   nor	
   are	
   the	
   alternatives	
   mutually	
   exclusive.116	
  	
   The	
   lenders	
   conceded	
   that	
   the	
   use	
   of	
   “or”	
  meant	
  that	
  the	
  statute	
  provided	
  alternatives.	
  	
  However,	
  they	
  went	
  on	
  to	
  argue	
   that	
   the	
   specific	
   wording	
   of	
   subsection	
   (ii)	
   should	
   prevail	
   over	
   the	
   more	
   general	
   terminology	
   of	
   subsection	
   (iii).	
   	
   Essentially,	
   this	
   would	
   mean	
   that	
   the	
   “proposed	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   113 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  304.	
   114 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  304;	
  See	
  Connecticut	
  National	
  Bank	
  v	
   Germain,	
  503	
  US	
  249	
  at	
  253-­‐254	
  (1992).	
  	
   115 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  304.	
   116 	
  See	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  245;	
  Wade	
  v	
  Bradford,	
  39	
  F	
  3d	
  1126	
  at	
  1130	
  (10th	
   Cir	
  1994).	
   	
    31	
    treatment	
   of	
   collateral	
   determines	
   which	
   of	
   the	
   §	
   1129(b)(2)(A)	
   alternatives	
   is	
   applicable.”117	
  	
  	
   	
   The	
   majority	
   rejected	
   this	
   argument,	
   stating	
   that	
   case	
   law	
   had	
   interpreted	
   the	
   “specific	
   governs	
   the	
   general”118	
  rule	
   to	
   apply	
   only	
   where	
   it	
   was	
   clear	
   that	
   the	
   specific	
  provision	
  was	
  intended	
  to	
  limit	
  the	
  general	
  provision.	
  	
  The	
  majority,	
  relying	
   on	
   the	
   ruling	
   in	
   Varity	
  Corp.	
  v.	
  Howe,	
   stated	
   that	
   they	
   could	
   find	
   no	
   such	
   intention	
   in	
   this	
   circumstance,	
   since	
   Congress	
   had	
   intentionally	
   included	
   “indubitable	
   equivalent”	
   in	
   order	
   to	
   approve	
   alternative	
   plans	
   of	
   asset	
   sales.119	
  	
   Fisher,	
   C.J.	
   also	
   considered	
   the	
   Fifth	
   Circuit	
   court’s	
   reasons	
   in	
   In	
  re	
  Pacific	
  Lumber	
  Co.	
  before	
   stating	
   that	
   the	
   listed	
   subsections	
   under	
   §	
   1129(b)(2)(A)	
   were	
   examples	
   provided	
   by	
   Congress	
  as	
  to	
  what	
  could	
  be	
  considered	
  “fair	
  and	
  equitable”	
  in	
  accordance	
  with	
  §	
   1129(b)(1).120 	
  	
  	
  	
  	
   	
   The	
   lenders’	
   second	
   argument	
   hinged	
   on	
   the	
   interpretation	
   of	
   “indubitable	
   equivalent.”	
   	
   They	
   argued	
   that	
   the	
   phrase	
   was	
   ambiguously	
   broad.	
   	
   	
   The	
   court	
   acknowledged	
  that	
  case	
  law	
  has	
  seldom	
  expressed	
  the	
  meaning	
  behind	
  indubitable	
   equivalent,	
  pointing	
  to	
  the	
  Fifth	
  Circuit’s	
  discussion	
  in	
  In	
  re	
  Pacific	
  Lumber	
  Co.	
  where	
   it	
   stated	
   that	
   it	
   is	
   “rarely	
   explained	
   in	
   caselaw,	
   because	
   most	
   contested	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   117 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  306.	
  	
   118 	
  See	
  In	
  re	
  Combustion	
  Engineering,	
  Inc.,	
  391	
  F	
  3d	
  190	
  (3d	
  Cir	
  2004)	
  (traditional	
  canon	
  of	
  statutory	
   interpretation	
  where	
  “specific	
  statutory	
  provisions	
  prevail	
  over	
  more	
  general	
  provisions”	
  at	
  237,	
  n	
   49);	
  Varity	
  Corp.	
  v.	
  Howe,	
  561	
  US	
  489	
  (1996)	
  (“a	
  warning	
  against	
  applying	
  a	
  general	
  provision	
  when	
   doing	
  so	
  would	
  undermine	
  limitations	
  created	
  by	
  a	
  more	
  specific	
  provision”	
  at	
  511).	
   119 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  308.	
   120 	
  Supra	
  note	
  58.	
    	
    32	
    reorganization	
   plans	
   follow	
   familiar	
   paths	
   outlined	
   in	
   Clauses	
   (i)	
   and	
   (ii).”121	
  	
   As	
   similarly	
  noted	
  in	
  regards	
  to	
  the	
  Fifth	
  Circuit’s	
  decision,	
  this	
  statement	
  should	
  have	
   given	
  the	
  majority	
  pause	
  to	
  reconsider	
  if	
  approving	
  this	
  sale	
  under	
  subsection	
  (iii)	
   what	
   the	
   right	
   decision.	
   	
   Despite	
   this	
   disadvantage,	
   the	
   court	
   defined	
   the	
   phrase	
   through	
  Webster’s	
  Third	
  New	
  International	
  Dictionary	
  where	
  “indubitable”	
  is	
  defined	
   as	
   “not	
   open	
   to	
   question	
   or	
   doubt,”	
   and	
   “equivalent”	
   means	
   “equal	
   in	
   force	
   or	
   amount”	
   or	
   “equal	
   in	
   value.”122	
  	
   The	
   Bankruptcy	
  Code	
   defines	
   “secured	
   claim”123	
  as	
   “the	
   extent	
   of	
   the	
   value	
   of	
   such	
   creditor’s	
   interest	
   in	
   the	
   estate’s	
   interest	
   in	
   such	
   property.”	
  	
  Hence,	
  the	
  court	
  interpreted	
  “indubitable	
  equivalent”	
  of	
  secured	
  claims	
   to	
  mean	
  “the	
  unquestionable	
  value	
  of	
  a	
  lender’s	
  secured	
  interest	
  in	
  the	
  collateral.”124	
  	
   The	
  majority	
  acknowledged	
  that	
  while	
  “indubitable	
  equivalent”	
  is	
  broadly	
  defined,	
  it	
   is	
   not	
   ambiguous,	
   pointing	
   to	
   the	
   Fifth	
   Circuit’s	
   postulation	
   that	
   subsection	
   (iii)	
   is	
   governed	
  by	
  the	
  same	
  “fair	
  and	
  equitable”	
  principles	
  that	
  govern	
  subsections	
  (i)	
  and	
   (ii).125	
  	
   The	
  court	
  then	
  cited	
  cases	
  where	
  the	
  debtor	
  had	
  supplied	
  creditors	
  with	
  an	
   indubitable	
   equivalent.126	
  	
   However,	
   both	
   these	
   cited	
   cases	
   involved	
   some	
   form	
   of	
   collateral	
   substitution,	
   which	
   precluded	
   the	
   plans	
   from	
   falling	
   strictly	
   under	
   §	
   1129(b)(2)(A)(ii).	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   121 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  246.	
   122 	
  Philip	
  Babcock	
  Gove,	
  ed,	
  Webster’s	
  Third	
  New	
  International	
  Dictionary	
  of	
  the	
  English	
  Language,	
    Unabridged	
  (Springfield,	
  Massachusetts:	
  G	
  &	
  C	
  Merriam	
  Co.,	
  1971)	
  at	
  1154,	
  769,	
  cited	
  in	
  In	
  re	
   Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  310.	
   123 	
  Supra	
  note	
  54.	
   124 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  310.	
   125 	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
  at	
  246.	
   126 	
  See	
  In	
  re	
  Sun	
  Country,	
  764	
  F	
  2d	
  406	
  (5th	
  Cir	
  1985)	
  (affirmed	
  the	
  Bankruptcy	
  Court’s	
  approval	
  of	
   the	
  release	
  of	
  the	
  lender’s	
  lien	
  on	
  200	
  acres	
  in	
  return	
  for	
  21	
  notes	
  secured	
  by	
  21	
  lots	
  of	
  land,	
  whereby	
   the	
  notes	
  were	
  found	
  to	
  fulfill	
  the	
  creditor’s	
  “indubitable	
  equivalent”	
  of	
  the	
  lien);	
  In	
  re	
  Criimi	
  Mae,	
   Inc.,	
  251	
  BR	
  796	
  at	
  807-­‐808	
  (Bankr	
  D	
  Md	
  2000)	
  (the	
  court	
  approved	
  a	
  plan,	
  which	
  involved	
  an	
  asset	
   sale	
  under	
  subsection	
  (iii)	
  in	
  addition	
  to	
  the	
  substitution	
  of	
  collateral).	
    	
    33	
    	
   Having	
   found	
   that	
   subsection	
   (iii)	
   was	
   unambiguous	
   and	
   that	
   the	
   subsections	
   merely	
  provide	
  non-­‐exhaustive	
  alternatives	
  under	
  which	
  a	
  debtor	
  can	
  cramdown	
  a	
   plan	
   of	
   reorganization,	
   it	
   flowed	
   from	
   this	
   interpretation	
   that	
   the	
   only	
   way	
   the	
   lenders	
  could	
  insist	
  on	
  their	
  right	
  to	
  credit	
  bid	
  was	
  if	
  it	
  was	
  expressly	
  stated	
  in	
  the	
   statute.	
  	
  Subsection	
  (iii)	
  contains	
  no	
  such	
  language.	
  	
  The	
  lenders	
  counter-­‐argued	
  that	
   in	
   order	
   to	
   satisfy	
   subsection	
   (iii),	
   the	
   lenders	
   must	
   have	
   the	
   right	
   to	
   credit	
   bid	
   to	
   establish	
   the	
   value	
   of	
   the	
   collateral.	
   	
   Again,	
   the	
   court	
   rejected	
   the	
   argument.	
   	
   The	
   majority	
   recognized	
   the	
   challenges	
   associated	
   with	
   an	
   under-­‐secured	
   creditor	
   and	
   the	
   importance	
   of	
   credit	
   bidding,	
   but	
   relied	
   on	
   In	
   re	
   Pacific	
   Lumber	
   Co.	
   in	
   finding	
   that	
   the	
   secured	
   creditors	
   could	
   potentially	
   receive	
   their	
   indubitable	
   equivalent	
   despite	
  being	
  denied	
  the	
  right	
  to	
  credit	
  bid.	
   	
   The	
  lenders’	
  final	
  argument	
  rested	
  on	
  congressional	
  intent,	
  citing	
  a	
  statement	
  made	
   by	
  Representative	
  Edwards:	
   Sale	
   of	
   property	
   under	
   section	
   363	
   or	
   under	
   a	
   plan	
   is	
   excluded	
   from	
   treatment	
  under	
  section	
  1111(b)	
  because	
  of	
  the	
  secured	
  party’s	
  right	
  to	
   credit	
  bid	
  in	
  the	
  full	
  amount	
  of	
  its	
  allowed	
  claim	
  at	
  any	
  sale	
  of	
  collateral	
   under	
  section	
  363(k)	
  of	
  the	
  House	
  Amendment.127	
  	
  	
   	
   The	
   purpose	
   of	
   §	
   1111(b)	
   is	
   to	
   provide	
   recourse	
   to	
   under-­‐secured	
   creditors.	
   	
   Where	
   the	
   court-­‐determined	
   value	
   of	
   the	
   collateral	
   is	
   less	
   than	
   the	
   secured	
   debt,	
   the	
   secured	
   creditors	
   have	
   the	
   option	
   of	
   making	
   a	
   §	
   1111(b)	
   election	
   whereby	
   the	
   deficiency	
   claim	
   is	
   treated	
   as	
   secured.	
   	
   However,	
   if	
   the	
   secured	
   collateral	
   is	
   sold	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   127 	
  US,	
  Cong	
  Rec,	
  vol	
  124,	
  24,	
  at	
  32407	
  (28	
  September	
  1978).	
   	
    34	
    under	
   a	
   plan	
   or	
   §	
   363,	
   then	
   the	
   secured	
   creditors	
   are	
   prevented	
   from	
   electing	
   §	
   1111(b).	
  	
   	
   The	
   lenders	
   argued	
   that	
   Congress	
   clearly	
   intended	
   for	
   secured	
   creditors	
   to	
   have	
   the	
   right	
   to	
   credit	
   bid	
   should	
   they	
   be	
   unable	
   to	
   make	
   a	
   §	
   1111(b)	
   election.	
   	
   The	
   court	
   pointed	
   out	
   that	
   the	
   wording	
   of	
  §	
   363(k)	
   includes	
   “unless	
   the	
   court	
   for	
   cause	
   orders	
   otherwise.”128	
  	
   Accordingly,	
   even	
   if	
   a	
   sale	
   were	
   to	
   proceed	
   under	
   §	
   363(k),	
   the	
   court	
   could	
  still	
  deny	
  secured	
  creditors	
  the	
  right	
  to	
  credit	
  bid.	
  	
  In	
  addition	
  to	
  this	
  for-­‐cause	
   exception,	
  the	
  court	
  also	
  noted	
  that	
  a	
  sale	
  of	
  assets	
  under	
  §	
  1129(b)(2)(A)(i)	
  does	
   not	
   entitle	
   the	
   lenders	
   to	
   credit	
   bid	
   either.	
   	
   Given	
   these	
   exceptions,	
   the	
   court	
   disagreed	
   with	
   the	
   lenders’	
   argument	
   that	
   denying	
   the	
   right	
   to	
   credit	
   bid	
   goes	
   against	
  congressional	
  intent.	
  	
  	
   	
   4.3.3	
  Dissent	
   Ambro,	
   C.J.	
   wrote	
   a	
   strong	
   dissenting	
   opinion	
   that	
   is	
   touted	
   by	
   academics	
   as	
   the	
   correct	
  interpretation	
  of	
  §	
  1129(b)(2)(A).129	
  	
   According	
  to	
  Ambro,	
  C.J.	
  the	
  majority	
   should	
   have	
   reviewed	
   §	
   1129(b)(2)(A)	
   in	
   the	
   context	
   of	
   the	
   entire	
   Bankruptcy	
  Code,	
   keeping	
  in	
  mind	
  legislative	
  intent,	
  which	
  would	
  have	
  pointed	
  “to	
  the	
  conclusion	
  that	
   the	
   Code	
   requires	
   cramdown	
   plan	
   sales	
   free	
   of	
   liens	
   to	
   fall	
   under	
   the	
   specific	
   requirements	
   of	
   §	
   1129(b)(2)(A)(ii)	
   and	
   not	
   to	
   the	
   general	
   requirements	
   of	
   subsection	
  (iii).”130	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   128 	
  Supra	
  note	
  52.	
   129 	
  See	
  Brookner,	
  supra	
  note	
  36;	
  	
  Barney,	
  supra	
  note	
  8.	
  	
   130 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  319.	
   	
    35	
    	
   Ambro,	
   C.J.	
   began	
   his	
   dissent	
   with	
   a	
   general	
   explanation	
   of	
   credit	
   bidding,	
   the	
   rationale	
  behind	
  it	
  being	
   that	
   a	
   secured	
   lender	
   would	
   not	
   outbid	
   a	
   bidder	
   unless	
   the	
   lender	
   thought	
   that	
   it	
   could	
   make	
   a	
   greater	
   profit	
   on	
   the	
   collateral	
   than	
   would	
   be	
   received	
   as	
   a	
   result	
   of	
   the	
   bidder’s	
   offer.131	
  	
   Credit	
   bidding	
   protects	
   the	
   secured	
   creditors’	
  collateral	
  from	
  being	
  undervalued.	
   	
   The	
   following	
   discussion	
   then	
   turned	
   around	
   the	
   ambiguous	
   nature	
   of	
   the	
   subsections	
  in	
  question.	
  	
  He	
  pointed	
  to	
  the	
  recent	
  different	
  interpretations	
  held	
  by	
   both	
   the	
   District	
   Court	
   and	
   the	
   Bankruptcy	
   Court	
   to	
   reach	
   the	
   conclusion	
   that	
   the	
   subsection	
   was	
   unclear	
   and,	
   as	
   such,	
   the	
   court	
   should	
   have	
   move	
   beyond	
   the	
   first	
   step	
   of	
   statutory	
   interpretation.	
   	
   Ambro,	
   C.J.	
   stated	
   that	
   canons	
   of	
   statutory	
   interpretation	
  dictate	
  that	
  the	
  “statutory	
  scheme	
  [should	
  be	
  read	
  in	
  a	
  manner]	
  that	
   gives	
   effect	
   to	
   every	
   provision	
   Congress	
   enacted	
   and	
   avoids	
   general	
   provisions	
   swallowing	
   specific	
   provisions,	
   especially	
   when	
   to	
   do	
   so	
   makes	
   the	
   specific	
   superfluous.”132 	
  	
   The	
   provisions	
   also	
   must	
   be	
   read	
   in	
   light	
   of	
   the	
   statute	
   as	
   a	
   whole.133	
  	
   	
   Finally,	
   when	
   ambiguity	
   or	
   uncertainty	
   still	
   remains,	
   turning	
   to	
   the	
   legislative	
  history	
  of	
  a	
  provision	
  might	
  provide	
  the	
  clarity	
  needed.134	
  	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   131 	
  SubMicron,	
  supra	
  note	
  53	
  at	
  460.	
  	
   132 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  328.	
  See	
  TRW,	
  Inc.	
  v	
  Adelaide	
  Andrews,	
  534	
   US	
  19	
  at	
  31	
  (2001).	
  	
   133 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  328.	
   134 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  334-­‐335.	
   	
    36	
    Ambro,	
  C.J.	
  then	
  performed	
  his	
  own	
  statutory	
  analysis.	
  	
  Using	
  the	
  reasoning	
  in	
  the	
   Fifth	
  Circuit’s	
  decision,	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  the	
  majority	
  in	
  that	
  case	
  emphasized	
   that	
   the	
   subsections	
   were	
   non-­‐exhaustive	
   alternatives	
   based	
   on	
   the	
   use	
   of	
   the	
   word	
   “or”	
  and	
  “includes”	
  in	
  §	
  1129(b)(2).135	
  	
  However,	
  Circuit	
  Judge	
  Ambro	
  found	
  that	
  the	
   longer-­‐lived	
   interpretation	
   turned	
   on	
   the	
   use	
   of	
   “provides.”136	
  	
   He	
   reasoned	
   that	
   “includes”	
  applies	
  to	
  §	
  1129(b)(2)	
  in	
  general	
  and	
  not	
  specifically	
  to	
  §	
  1129(b)(2)(A).	
  	
   However,	
   upon	
   delving	
   deeper	
   into	
   §	
   1129(b)(2)(A),	
   the	
   operative	
   word	
   is	
   “provides,”	
  “whereby	
  Congress	
  prescribes	
  specific	
  treatments	
  for	
  specific	
  scenarios	
   of	
   secured-­‐claim	
   treatment.”137 	
  	
   Given	
   this	
   understanding	
   of	
   the	
   statute,	
   Circuit	
   Judge	
   Ambro	
   found	
   that	
   Congress	
   intended	
   there	
   to	
   be	
   three	
   distinct	
   alternatives	
   that	
  may	
  be	
  used	
  to	
  cramdown	
  plans.	
  	
  These	
  distinct	
  alternatives	
  require	
  the	
  debtor	
   to	
   meet	
   certain	
   requirements	
   depending	
   on	
   the	
   chosen	
   alternative,	
   rather	
   than	
   leaving	
   it	
   open	
   to	
   the	
   debtors	
   to	
   choose	
   which	
   alternative	
   they	
   wish	
   to	
   employ.	
  	
   Accordingly,	
   any	
   plan	
   that	
   proposes	
   to	
   sell	
   secured	
   creditors’	
   collateral	
   free	
   and	
   clear	
  of	
  liens	
  would	
  entitle	
  the	
  secured	
  creditors	
  the	
  right	
  to	
  credit	
  bid.	
  	
   	
   Circuit	
  Judge	
  Ambro	
  went	
  on	
  to	
  state	
  that	
  the	
  majority’s	
  interpretation	
  violated	
  not	
   only	
  traditional	
  canons	
  of	
  statutory	
  interpretation,	
  but	
  also	
  defeated	
  the	
  purpose	
  of	
   including	
   credit	
   bidding	
   in	
   §	
   1129(b)(2)(A)(ii)	
   which	
   was	
   to	
   protect	
   the	
   value	
   of	
   secured	
  collateral.	
  	
  The	
  “specific	
  over	
  general”	
  canon	
  embodies	
  the	
  principle	
  that	
  the	
   “[g]eneral	
   language	
   of	
   a	
   statutory	
   provision,	
   although	
   broad	
   enough	
   to	
   include	
   it,	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   135 	
  Supra	
  note	
  97.	
   136 	
  Supra	
  note	
  59.	
   137 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  325.	
   	
    37	
    will	
   not	
   be	
   held	
   to	
   apply	
   to	
   a	
   matter	
   specifically	
   dealt	
   with	
   in	
   another	
   part	
   of	
   the	
   same	
  enactment.”138	
  	
  Subsection	
  (i)	
  and	
  (ii)	
  are	
  both	
  specific	
  provisions	
  detailing	
  the	
   criteria	
   that	
   must	
   be	
   met	
   to	
   ensure	
   that	
   a	
   plan	
   is	
   “fair	
   and	
   equitable.”	
   	
   Subsection	
   (iii),	
   however,	
   is	
   a	
   much	
   more	
   generalized	
   catch-­‐all	
   provision	
   that	
   should	
   be	
   used	
   when	
   plans	
   do	
   not	
   meet	
   criteria	
   in	
   subsections	
   (i)	
   or	
   (ii),	
   and	
   not,	
   as	
   the	
   majority	
   found,	
  just	
  another	
  alternative	
  at	
  the	
  debtor’s	
  disposal.	
  	
  Subsection	
  (iii)’s	
  application	
   should	
   be	
   limited	
   to	
   those	
   plans	
   that	
   do	
   not	
   fall	
   under	
   subsection	
   (i)	
   or	
   (ii).	
   	
   	
   Hence,	
   Circuit	
  Judge	
  Ambro	
  went	
  on	
  to	
  find	
  that	
  confirming	
  the	
  plan	
  under	
  subsection	
  (iii)	
   and	
   bypassing	
   the	
   secured	
   creditors’	
   right	
   to	
   credit	
   bid	
   is	
   contradictory	
   to	
   congressional	
  intent.	
  	
  	
  	
  	
  	
   	
   He	
   then	
   went	
   on	
   to	
   state	
   that	
   the	
   majority’s	
   interpretation	
   violates	
   not	
   only	
   the	
   “specific	
   over	
   general”	
   rule,	
   but	
   also	
   renders	
   subsection	
   (ii)	
   superfluous,	
   violating	
   the	
   anti-­‐superflousness	
   canon.139	
  	
   The	
   majority	
   opinion	
   found	
   that	
   plans	
   might	
   be	
   confirmed	
   under	
   subsection	
   (iii)	
   even	
   when	
   subsection	
   (ii)	
   would	
   apply.	
   	
   The	
   majority	
   reasoned	
   that	
   subsections	
   (i)	
   and	
   (ii)	
   were	
   merely	
   examples	
   of	
   what	
   could	
   constitute	
  a	
  “fair	
  and	
  equitable”	
  plan.	
  	
  However,	
  as	
  Circuit	
  Judge	
  Ambro	
  noted,	
  this	
   directly	
  violates	
  the	
  anti-­‐superfluousness	
  rule.	
  	
  Moreover,	
  he	
  went	
  on	
  to	
  add	
  that	
  if	
   plans	
   of	
   sale	
   can	
   be	
   approved	
   under	
   subsection	
   (iii),	
   then	
   it	
   was	
   unnecessary	
   for	
   Congress	
  to	
  add	
  a	
  right	
  to	
  credit	
  bid	
  in	
  subsection	
  (ii).	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   138 	
  D.	
  Ginsberg	
  &	
  Sons	
  v	
  Popkin,	
  285	
  US	
  204	
  at	
  208	
  (1932).	
  	
   139 	
  TRW,	
  Inc.	
  v	
  Adelaide	
  Andrews,	
  supra	
  note	
  132	
  (no	
  provision	
  “shall	
  be	
  superfluous,	
  void,	
  or	
   insignificant”	
  at	
  31);	
  See	
  also	
  Market	
  Co.	
  v	
  Hoffman,	
  101	
  US	
  112	
  at	
  115-­‐116	
  (1879).	
   	
    38	
    Finally,	
  Judge	
  Ambro	
  predicted	
  that	
  the	
  majority’s	
  decision	
  would	
  also	
  create	
  some	
   discomfort	
   in	
   the	
   loaning	
   community,	
   as	
   a	
   traditional	
   right	
   that	
   lenders	
   had	
   previously	
   relied	
   on,	
   was	
   now	
   being	
   eroded	
   creating	
   unpredictability.	
   	
   He	
   argued	
   that	
   credit	
   bidding	
   had	
   been	
   inserted	
   as	
   a	
   right	
   in	
   the	
   Code	
   to	
   protect	
   lenders’	
   interests,	
   not	
   the	
   debtors.	
   	
   He	
   argued	
   that	
   this	
   decision	
   was	
   contrary	
   to	
   Congressional	
   intent,	
   as	
   future	
   bankruptcy	
   proceedings	
   would	
   likely	
   be	
   directed	
   under	
   the	
   more	
   flexible	
   subsection	
   (iii)	
   where	
   debtors	
   could	
   continue	
   to	
   cramdown	
   plans	
   that	
   sell	
   the	
   lenders’	
   collateral	
   free	
   and	
   clear	
   of	
   liens	
   while	
   simultaneously	
   denying	
  the	
  lenders	
  the	
  right	
  to	
  credit	
  bid.	
  	
  	
   	
   4.4	
  Reaction	
  to	
  the	
  Third	
  and	
  Fifth	
  Circuit	
  Decisions	
   Following	
   the	
   Third	
   and	
   Fifth	
   Circuits’	
   rulings,	
   academics	
   and	
   practitioners	
   alike	
   responded	
  with	
  an	
  outpouring	
  of	
  commentaries	
  and	
  articles	
  claiming	
  that	
  the	
  courts	
   were	
   mistaken	
   in	
   their	
   interpretation	
   of	
   §	
   1129(b)(2)(A)(ii)	
   and	
   §	
   1129(b)(2)(A)(iii),	
   while	
   simultaneously	
   hailing	
   Circuit	
   Judge	
   Ambro’s	
   dissent	
   as	
   the	
   proper	
   interpretation.140	
  	
   However,	
   it	
   appeared	
   as	
   if	
   there	
   was	
   a	
   new	
   trend	
   in	
   statutory	
  interpretation	
  of	
  these	
  subsections,	
  as	
  this	
  was	
  the	
  second	
  major	
  case	
  that	
   had	
  upset	
  prior	
  case	
  law	
  history.	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   140 	
  See	
  Resnick,	
  supra	
  note	
  55;	
  Barney,	
  supra	
  note	
  8;	
  	
  Brookner,	
  supra	
  note	
  36;	
  	
  Vincent	
  S.	
  J.	
  Buccola	
   &	
  Ashley	
  C.	
  Keller,	
  “Credit	
  Bidding	
  and	
  the	
  Design	
  of	
  Bankruptcy	
  Auctions”	
  (2010)	
  18	
  Geo	
  Mason	
  L	
   Rev	
  99.	
    	
    39	
    The	
   major	
   concerns	
   of	
   most	
   critics	
   rested	
   on	
   the	
   issues	
   of	
   undervaluation	
   and	
   lender	
  certainty.141	
  	
   Credit	
  bidding	
  enables	
  lenders	
  to	
  step	
  in	
  and	
  bid	
  up	
  to	
  the	
  face	
   value	
  of	
  the	
  debt	
  owed	
  on	
  the	
  secured	
  collateral.142	
  	
  Hence,	
  if	
  a	
  bidder	
  submits	
  a	
  low	
   bid	
  compared	
  to	
  the	
  market	
  value	
  of	
  the	
  collateral,	
  the	
  secured	
  creditors	
  can	
  submit	
   a	
   higher	
   bid	
   and,	
   if	
   successful,	
   claim	
   the	
   collateral.	
   	
   Aside	
   from	
   potential	
   valuation	
   issues,	
   credit	
   bidding	
   also	
   avoids	
   the	
   secured	
   creditors	
   from	
   having	
   to	
   raise	
   additional	
   capital,	
   which	
   could	
   prove	
   problematic	
   for	
   secured	
   creditors	
   that	
   are	
   short	
  on	
  capital	
  or	
  where	
  lender	
  syndicates	
  are	
  involved.	
  	
  As	
  pointed	
  out	
  by	
  Judge	
   Ambro	
   in	
   his	
   dissent,	
   the	
   decisions	
   in	
   In	
  re	
  Philadelphia	
   Newspapers,	
  LLC	
  and	
   In	
  re	
   Pacific	
   Lumber	
   Co.	
   also	
   impact	
   secured	
   creditors’	
   certainty	
   with	
   respect	
   to	
   credit	
   bidding.	
   	
   Creditor	
   uncertainty	
   could	
   lead	
   to	
   an	
   increase	
   in	
   transaction	
   costs	
   as	
   secured	
   creditors	
   might	
   now	
   face	
   potential	
   litigation	
   as	
   secured	
   parties	
   debate	
   whether	
   or	
   not	
   their	
   “indubitable	
   equivalent”	
   is	
   being	
   met.143	
  	
   This	
   uncertainty	
   might	
   also	
   result	
   in	
   a	
   decrease	
   in	
   available	
   credit.	
   	
   Whereas	
   creditors	
   once	
   relied	
   on	
   credit	
   bidding	
   to	
   ensure	
   full	
   repayment	
   of	
   the	
   debt,	
   lenders	
   may	
   decrease	
   the	
   amount	
   of	
   credit	
   extended	
   to	
   debtors	
   to	
   account	
   for	
   the	
   potential	
   loss	
   of	
   credit	
   bidding.144 	
  	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   141 	
  See	
  Resnick,	
  supra	
  note	
  55.	
  	
  	
   142 	
  See	
  SubMicron,	
  supra	
  note	
  53.	
   143 	
  Resnick,	
  supra	
  note	
  55	
  at	
  357-­‐358;	
  	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  337.	
   144 	
  Resnick,	
  supra	
  note	
  55	
  at	
  358-­‐359;	
  	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  337.	
   	
    40	
    4.5	
  River	
  Road	
  Hotel	
  Partners,	
  LLC	
  v.	
  Amalgamated	
  Bank145	
  	
   The	
   facts	
   of	
   this	
   case	
   involve	
   two	
   parties	
   of	
   debtors,	
   which	
   can	
   be	
   simplified	
   into	
   River	
   Road	
   debtors	
   and	
   RadLAX	
   debtors.	
   	
   Both	
   parties	
   had	
   purchased	
   hotels	
   through	
  a	
  loan	
  agreement	
  from	
  Longview	
  Ultra	
  Construction	
  Loan	
  Investment,	
  the	
   lenders.146 	
  	
   Due	
   to	
   unanticipated	
   costs,	
   both	
   debtor	
   parties	
   defaulted	
   and	
   filed	
   voluntary	
  petitions	
  under	
  Chapter	
  11	
  of	
  the	
  US	
  Bankruptcy	
  Code	
  in	
  the	
  United	
  States	
   Bankruptcy	
   Court	
   for	
   the	
   Northern	
   District	
   of	
   Illinois,	
   Eastern	
   Division.147	
  	
   River	
   Road	
   debtors	
   and	
   RadLAX	
   debtors	
   submitted	
   plans	
   of	
   reorganization	
   for	
   court	
   approval.	
  	
  The	
  plans	
  included	
  an	
  asset	
  sale	
  through	
  which	
  the	
  assets	
  would	
  be	
  sold	
   to	
   the	
   highest	
   bidder	
   at	
   auction	
   with	
   the	
   help	
   of	
   a	
   stalking	
   horse	
   bidder.148	
  	
   In	
   addition	
   to	
   the	
   plans	
   of	
   reorganization,	
   the	
   debtors	
   also	
   sought	
   approval	
   of	
   the	
   bidding	
  process,	
  which	
  precluded	
  the	
  lenders	
  from	
  credit	
  bidding.149	
  	
  	
   	
   The	
   lenders	
   objected	
   to	
   the	
   plans.	
   	
   Since	
   §	
   1129(a)	
   requires	
   lender	
   approval,	
   the	
   debtors	
  attempted	
  to	
  have	
  the	
  plan	
  crammed	
  down	
  under	
  §	
  1129(b)(2)(A)(iii).	
  	
  The	
   lenders’	
  argued	
  that	
  the	
  plan	
  could	
  not	
  be	
  approved	
  under	
  this	
  subsection	
  because	
  a	
   sale	
   of	
   assets	
   free	
   and	
   clear	
   of	
   liens	
   falls	
   not	
   under	
   the	
   scope	
   of	
   (iii)	
   but	
   §	
   1129(b)(2)(A)(ii).	
  	
  The	
  lenders	
  went	
  on	
  to	
  say	
  that	
  since	
  the	
  plan	
  fails	
  to	
  meet	
  the	
   requirements	
  of	
  (ii)	
  by	
  denying	
  the	
  lenders	
  the	
  right	
  to	
  credit	
  bid	
  the	
  plan	
  should	
  be	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   145 	
  Supra	
  note	
  12.	
   146 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  643-­‐644.	
   147 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  644.	
   148 	
  See	
  In	
  re	
  New	
  River	
  Dry	
  Dock,	
  Inc.,	
  497	
  Fed	
  Appx	
  882	
  (11th	
  Cir	
  2012)	
  (“[a]	
  ‘stalking	
  horse’	
  bid	
  is	
   the	
  first	
  bid	
  from	
  a	
  potential	
  buyer	
  on	
  a	
  bankrupt	
  debtor’s	
  assets…to	
  set	
  the	
  floor	
  for	
  the	
  later	
   competing	
  bids	
  of	
  other	
  potential	
  purchases,	
  thereby	
  preventing	
  lowball	
  offers”	
  at	
  884,	
  n	
  2).	
   149 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  645.	
    	
    41	
    rejected.	
   The	
   Bankruptcy	
   Court	
   ultimately	
   ruled	
   in	
   the	
   lenders’	
   favour,	
  150	
  leading	
   the	
  debtors	
  to	
  appeal	
  the	
  judgment	
  to	
  the	
  Seventh	
  Circuit	
  court.	
  	
   	
   As	
   seen	
   in	
   the	
   prior	
   cases,	
   the	
   debtors	
   argued	
   that	
   the	
   proposed	
   plans	
   of	
   reorganization	
   should	
   be	
   confirmed	
   under	
   §	
   1129(b)(2)(A)(iii).	
   	
   The	
   Bankruptcy	
   Court	
   had	
   disagreed	
   with	
   the	
   debtors	
   and	
   referred	
   to	
   Judge	
   Ambro’s	
   dissent	
   in	
   In	
  re	
   Philadelphia	
   Newspapers,	
   LLC	
   as	
   the	
   correct	
   statutory	
   interpretation	
   of	
   §	
   1129(b)(2)(A).	
   	
   On	
   appeal,	
   the	
   Seventh	
   Circuit	
   reviewed	
   the	
   statutory	
   language	
   of	
   the	
  disputed	
  subsection	
  in	
  order	
  to	
  formulate	
  its	
  own	
  interpretation	
  as	
  to	
  how	
  the	
   subsection	
   should	
   be	
   applied.	
   	
   The	
   court	
   noted	
   that	
   “the	
   majority	
   of	
   cramdown	
   plans	
   have	
   sought	
   confirmation	
   under	
   subsection	
   (ii)	
   of	
   1129(b)(2)(A),”151	
  a	
   fact	
   that	
   had	
   also	
   been	
   noted	
   in	
   both	
   In	
  re	
  Philadelphia	
  Newspapers,	
  LLC	
  and	
   In	
  re	
  Pacific	
   Lumber	
  Co.152	
   	
   Unsurprisingly,	
   the	
   debtors	
   relied	
   on	
   In	
  re	
  Philadelphia	
  Newspapers,	
  LLC	
  and	
   In	
  re	
   Pacific	
  Lumber	
  Co.	
  to	
  support	
  their	
  argument	
  that	
  their	
  reorganization	
  plan	
  could	
  be	
   confirmed	
  under	
  §	
  1129(b)(2)(A)(iii).	
  	
  Unlike	
  its	
  sister	
  circuits,	
  the	
  Seventh	
  Circuit	
   rejected	
   the	
   debtors’	
   argument	
   and,	
   instead,	
   found	
   Judge	
   Ambro’s	
   analysis	
   persuasive.	
   	
   The	
   court	
   focused	
   its	
   discussion	
   on	
   two	
   issues:	
   1)	
   the	
   scope	
   of	
   §	
   1129(b)(2)(A)(iii)	
   and	
   2)	
   the	
   definition	
   of	
   “indubitable	
   equivalent.”	
   	
   In	
   addressing	
   the	
   scope	
   of	
   §	
   1129(b)(2)(A)(iii),	
   the	
   court	
   acknowledged	
   that	
   there	
   were	
   two	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   150 	
  In	
  re	
  River	
  Road	
  Hotel	
  Partners,	
  LLC,	
  supra	
  note	
  68.	
   151 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  647.	
   152 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  310;	
  	
  In	
  re	
  Pacific	
  Lumber	
  Co.,	
  supra	
  note	
  12	
   at	
  246.	
  	
   	
    42	
    possible	
   interpretations.	
   	
   The	
   first	
   interpretation	
   involved	
   limiting	
   the	
   scope	
   of	
   subsection	
   (iii)	
   to	
   those	
   plans	
   not	
   covered	
   by	
   subsection	
   (i)	
   and	
   (ii).	
   	
   The	
   second	
   possible	
   interpretation	
   would	
   define	
   subsection	
   (iii)	
   as	
   having	
   a	
   more	
   global	
   application.	
   	
   The	
   Seventh	
   Circuit	
   found	
   that	
   the	
   debtors’	
   interpretation	
   of	
   §	
   1129(b)(2)(A)(iii),	
   where	
  the	
  subsection	
  would	
  be	
  applied	
  globally,	
  violated	
  a	
  basic	
  tenet	
  of	
  statutory	
   interpretation.153	
  	
   The	
  debtors	
  argued	
  that	
  interpretation	
  of	
  (iii)	
  in	
  a	
  broad	
  manner	
   should	
  apply	
  to	
  approve	
  asset	
  sales	
  that	
  fail	
  to	
  meet	
  the	
  requirements	
  of	
  the	
  prior	
   subsections.	
  	
  The	
  court	
  took	
  issue	
  with	
  this	
  argument	
  as	
  the	
  prior	
  subsections	
  would	
   no	
   longer	
   serve	
   any	
   purpose	
   if	
   sales	
   that	
   failed	
   to	
   meet	
   subsections’	
   (i)	
   and	
   (ii)	
   requirements	
  could	
  still	
  be	
  approved	
  under	
  (iii).	
  	
  The	
  court	
  found	
  that	
  this	
  type	
  of	
   statutory	
   interpretation	
   would	
   defeat	
   the	
   subsections’	
   purpose	
   and	
   render	
   them	
   superfluous,	
  a	
  trait	
  this	
  is	
  “highly	
  disfavored”154	
  and	
  could	
  not	
  have	
  possibly	
  been	
  in	
   line	
   with	
   Congressional	
   intent.155	
  	
   Instead,	
   the	
   court	
   found	
   that	
   “plans	
   could	
   only	
   qualify	
   as	
   ‘fair	
   and	
   equitable’	
   under	
   Subsection	
   (iii)	
   if	
   they	
   proposed	
   disposing	
   of	
   assets	
  in	
  ways	
  that	
  are	
  not	
  described	
  in	
  Subsections	
  (i)	
  and	
  (ii).”156	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   153 	
  Duncan	
  v	
  Walker,	
  533	
  US	
  167	
  (2001)	
  (“a	
  statute	
  ought…to	
  be	
  construed	
  so	
  that,	
  if	
  it	
  can	
  be	
   prevented,	
  no	
  clause,	
  sentence,	
  or	
  word	
  shall	
  be	
  superfluous,	
  void,	
  or	
  insignificant”	
  at	
  174).	
   154 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  651.	
   155 	
  See	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  (Ambro,	
  J.,	
  dissenting)	
  (“it	
  would	
  be	
   anomalous	
  for	
  Congress	
  to	
  draft	
  a	
  specific	
  provision,	
  clause	
  (ii),	
  providing	
  protections	
  above	
  and	
   beyond	
  those	
  given	
  to	
  secured	
  creditors	
  under	
  the	
  prior	
  Bankruptcy	
  Act,	
  only	
  to	
  allow	
  clause	
  (iii)	
  to	
   be	
  used	
  to	
  circumvent	
  those	
  protections	
  and	
  return	
  to	
  the	
  precise	
  mechanism	
  used	
  prior	
  to	
  the	
  Code”	
   at	
  335).	
   156 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  652.	
    	
    43	
    In	
  addition	
  to	
  the	
  statutory	
  interpretation	
  of	
  the	
  applicability	
  of	
  subsection	
  (iii),	
  the	
   Seventh	
  Circuit	
  also	
  reflected	
  on	
  the	
  meaning	
  of	
  “indubitable	
  equivalent.”	
  	
  The	
  court	
   stated	
  that	
  “the	
  ‘indubitable	
  equivalent’	
  of	
  a	
  creditor’s	
  secured	
  claim	
  depends	
  on	
  the	
   amount	
   of	
   the	
   creditor’s	
   lien	
   and	
   the	
   current	
   value	
   of	
   the	
   secured	
   asset.”157	
  	
   The	
   court	
  noted	
  that	
  special	
  care	
  must	
  be	
  taken	
  in	
  valuing	
  an	
  under-­‐secured	
  creditor’s	
   claim	
   since	
   it	
   can	
   be	
   difficult	
   to	
   establish	
   the	
   market	
   value	
   of	
   the	
   collateral.	
   	
   The	
   Bankruptcy	
   Code	
   establishes	
   a	
   judicial	
   valuation158 	
  and	
   free	
   market	
   valuation159	
   mechanism.	
   	
   Sales	
   under	
   §	
   363(k)	
   and	
   §	
   1129(b)(2)(A)	
   engage	
   the	
   free	
   market	
   valuation	
   mechanism.	
   	
   However,	
   multiple	
   factors	
   can	
   affect	
   the	
   free	
   market	
   valuation	
  of	
  the	
  secured	
  creditors’	
  collateral.160	
  	
  Therefore,	
  the	
  inclusion	
  of	
  the	
  right	
   to	
  credit	
  bid	
  under	
  these	
  provisions	
  protects	
  secured	
  creditors	
  from	
  undervaluation	
   of	
   their	
   collateral.	
   	
   If	
   the	
   secured	
   creditors	
   underbid,	
   then	
   they	
   still	
   receive	
   the	
   dollar	
  value	
  recovered	
  in	
  the	
  sale.	
  	
  However,	
  if	
  they	
  feel	
  that	
  the	
  collateral	
  will	
  not	
   fetch	
   the	
   fair	
   market	
   price	
   (ie.	
   other	
   opportunistic	
   purchasers	
   are	
   underbidding)	
   then	
  the	
  secured	
  creditors	
  can	
  use	
  their	
  credit	
  to	
  bid	
  on	
  the	
  asset	
  and	
  trump	
  would-­‐ be	
  purchasers.	
  	
  Since	
  the	
  proposed	
  plan	
  denied	
  credit	
  bidding,	
  the	
  secured	
  creditors	
   were	
   at	
   a	
   risk	
   of	
   not	
   receiving	
   their	
   indubitable	
   equivalent	
   due	
   to	
   undervaluation	
   of	
   their	
  collateral.161	
  	
  	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   157 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  650.	
   158 	
  11	
  USC	
  §	
  506(a)(1)	
  (2012).	
   159 	
  11	
  USC	
  §	
  363(k)	
  (2012);	
  	
  11	
  USC	
  at	
  §	
  1129(b)(2)(A)	
  (2012).	
   160 	
  See	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  651,	
  n	
  6.	
  	
   161 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  650-­‐651.	
   	
    44	
    Having	
   found	
   that	
   the	
   debtors’	
   proposed	
   interpretation	
   of	
   subsection	
   (iii)	
   would	
   violate	
   statutory	
   canons	
   of	
   interpretation	
   and	
   would	
   deny	
   the	
   secured	
   creditors	
   the	
   protections	
   intended	
   by	
   the	
   legislature,	
   the	
   court	
   rejected	
   the	
   debtors’	
   argument.	
  	
   Instead,	
  the	
  Seventh	
  Circuit	
  upheld	
  the	
  Bankruptcy	
  Court’s	
  decision,	
  requiring	
  that	
  a	
   plan	
  constituting	
  an	
  asset	
  sale	
  free	
  of	
  the	
  secured	
  creditors’	
  claim	
  must	
  entitle	
  the	
   lenders	
  to	
  credit	
  bid.162	
  	
  	
  	
   	
   This	
  case	
  was	
  a	
  near	
  reversal	
  of	
  the	
  findings	
  in	
  both	
  In	
   re	
   Pacific	
   Lumber	
   Co.	
   and	
  In	
   re	
   Philadelphia	
   Newspapers,	
   LLC.	
   	
   The	
   Seventh	
   Circuit,	
   which	
   gave	
   a	
   unanimous	
   judgment,	
   sided	
   instead	
   with	
   Judge	
   Ambro’s	
   dissenting	
   opinion	
   in	
   In	
  re	
  Philadelphia	
   Newspapers,	
   LLC.	
   The	
   field	
   of	
   bankruptcy	
   had	
   become	
   a	
   tennis	
   match,	
   with	
   credit	
   bidding	
  as	
  the	
  ball	
  being	
  hit	
  from	
  side	
  to	
  side.	
  	
  	
   	
   4.6	
  The	
  United	
  States	
  Supreme	
  Court	
  Steps	
  into	
  the	
  Match	
   Following	
  the	
  Seventh	
  Circuit’s	
  decision,	
  the	
  US	
  Supreme	
  Court	
  granted	
  certiorari.163	
  	
   Arguably	
  the	
  most	
  important	
  case	
  regarding	
  credit	
  bidding,	
  the	
  US	
  Supreme	
  Court	
   offered	
  the	
  shortest	
  analysis.	
  	
  The	
  Supreme	
  Court	
  noted	
  that:	
   [t]he	
   ability	
   to	
   credit-­‐bid	
   helps	
   to	
   protect	
   a	
   creditor	
   against	
   the	
   risk	
   that	
   its	
   collateral	
   will	
   be	
   sold	
   at	
   a	
   depressed	
   price.	
   	
   It	
   enables	
   the	
   creditor	
   to	
   purchase	
   the	
   collateral	
   for	
   what	
   it	
   considers	
   the	
   fair	
   market	
   price	
   (up	
   to	
   the	
   amount	
   of	
   its	
   security	
   interest)	
   without	
   committing	
  additional	
  cash	
  to	
  protect	
  the	
  loan.164	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   162 	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  651-­‐653.	
   163 	
  Legal	
  Information	
  Institute,	
  online:	
  <http://www.law.cornell.edu/wex/certiorari>	
  (Parties	
   seeking	
  a	
  review	
  of	
  their	
  case	
  petition	
  the	
  US	
  Supreme	
  Court	
  to	
  issue	
  a	
  writ	
  of	
  certiorari.	
  	
  If	
  granted,	
   the	
  writ	
  requires	
  the	
  lower	
  court	
  to	
  deliver	
  its	
  record	
  of	
  the	
  case	
  to	
  the	
  US	
  Supreme	
  Court	
  for	
   review).	
  	
   164 	
  RadLAX	
  Gateway,	
  supra	
  note	
  69	
  at	
  2070,	
  n	
  2.	
    	
    45	
    	
   In	
   dismissing	
   the	
   debtors’	
   position	
   that	
   the	
   plan	
   should	
   be	
   approved	
   under	
   §	
   1129(b)(2)(A)(iii),	
   the	
   court	
   referred	
   back	
   to	
   traditional	
   canons	
   of	
   statutory	
   interpretation	
   whereby	
   “specific	
   governs	
   the	
   general.” 165 	
  	
   While	
   the	
   court	
   acknowledged	
  that	
  the	
  rule	
  usually	
  pertained	
  to	
  addressing	
  contradictions	
  such	
  as	
   specific	
   statutory	
   prohibitions	
   in	
   light	
   of	
   general	
   permissions,	
   the	
   rule	
   could	
   also	
   apply	
   to	
   statutory	
   conflicts	
   that	
   were	
   superfluous	
   in	
   nature.166	
  	
   In	
   D.	
  Ginseng	
  &	
  Sons,	
   Inc.	
   v.	
   Popkin,	
   the	
   US	
   Supreme	
   Court	
   found	
   that	
   the	
   “[g]eneral	
   language	
   of	
   a	
   statutory	
  provision,	
  although	
  broad	
  enough	
  to	
  include	
  it,	
  will	
  not	
  be	
  held	
  to	
  apply	
  to	
   a	
  matter	
  specifically	
  dealt	
  with	
  in	
  another	
  part	
  of	
  the	
  same	
  enactment.”167	
  	
  	
  	
   It	
  is	
  an	
  old	
  and	
  familiar	
  rule	
  that,	
  where	
  there	
  is,	
  in	
  the	
  same	
  statute,	
  a	
   particular	
   enactment,	
   and	
   also	
   a	
   general	
   one,	
   which,	
   in	
   its	
   most	
   comprehensive	
  sense,	
  would	
  include	
  what	
  is	
  embraced	
  in	
  the	
  former,	
   the	
   particular	
   enactment	
   must	
   be	
   operative,	
   and	
   the	
   general	
   enactment	
   must	
   be	
   taken	
   to	
   affect	
   only	
   such	
   cases	
   within	
   its	
   general	
   language	
  as	
  are	
  not	
  within	
  the	
  provisions	
  of	
  the	
  particular	
  enactment.	
  	
   This	
   rule	
   applies	
   whenever	
   an	
   act	
   contains	
   general	
   provisions	
   and	
   also	
   special	
   ones	
   upon	
   a	
   subject,	
   which,	
   standing	
   alone,	
   the	
   general	
   provisions	
  would	
  include.168	
   	
   Flowing	
   from	
   this	
   analysis,	
   the	
   US	
   Supreme	
   Court	
   found	
   that	
   since	
   the	
   plan	
   attempted	
   to	
   sell	
   the	
   assets	
   free	
   and	
   clear	
   of	
   liens,	
   the	
   plan	
   fell	
   under	
   the	
   more	
   specific	
  provisions	
  of	
  subsection	
  (ii),	
  and	
  as	
  such,	
  the	
  lenders	
  were	
  entitled	
  to	
  credit	
   bid,	
  affirming	
  the	
  judgment	
  of	
  the	
  Court	
  of	
  Appeals.	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   165 	
  Morales	
  v	
  Trans	
  World	
  Airlines,	
  Inc.,	
  504	
  US	
  374	
  at	
  384	
  (1992).	
   166 	
  RadLAX	
  Gateway,	
  supra	
  note	
  69	
  at	
  2071.	
  	
   167 	
  D.	
  Ginseng	
  &	
  Sons,	
  Inc.	
  v	
  Popkin,	
  supra	
  note	
  138. 	
   168 	
  United	
  States	
  v	
  Chase,	
  135	
  US	
  255	
  at	
  260	
  (1890)	
  [internal	
  quotations	
  omitted].	
   	
    46	
    The	
  judgment	
  from	
  the	
  Supreme	
  Court	
  marked	
  the	
  end	
  of	
  a	
  three-­‐year	
   debate,	
   with	
   lenders	
   finally	
   winning	
   in	
   regards	
   to	
   secured	
   creditors’	
   rights.	
   	
   However,	
   the	
   debate	
   also	
  managed	
  to	
  draw	
  much	
  larger	
  issues	
  into	
  the	
  forefront,	
  specifically	
  the	
  merits	
   of	
   credit	
   bidding.	
   	
   The	
   Supreme	
   Court	
   briefly	
   touched	
   on	
   the	
   importance	
   of	
   credit	
   biddings	
  in	
  the	
  Federal	
  Government,	
  which	
  enables	
  the	
  circumvention	
  of	
  requesting	
   more	
   funds	
   from	
   an	
   appropriations	
   authority,	
   but	
   ultimately	
   brushed	
   over	
   the	
   discussion	
   of	
   any	
   other	
   merits	
   to	
   credit	
   bidding,	
   instead	
   pointing	
   to	
   Congress	
   as	
   the	
   appropriate	
   forum	
   for	
   these	
   discussions	
   and	
   not	
   the	
   courts.	
   	
   While	
   the	
   Supreme	
   Court	
   carefully	
   avoided	
   weighing	
   in	
   on	
   the	
   debate,	
   it	
   did	
   acknowledge	
   that	
   these	
   issues	
   were	
   discussed	
   by	
   Judge	
   Ambro	
   in	
   his	
   dissent	
   in	
   In	
   re	
   Philadelphia	
   Newspapers,	
   LLC.	
   	
   Perhaps	
   the	
   Court	
   felt	
   that	
   there	
   was	
   no	
   need	
   to	
   delve	
   into	
   a	
   theoretical	
  discussion	
  since	
  it	
  need	
  merely	
  rely	
  on	
  the	
  detailed	
  Bankruptcy	
  Code	
  in	
   its	
  interpretation	
  of	
  the	
  law.	
  	
   	
   	
   	
   	
   	
   	
    	
    47	
    CHAPTER	
  5:	
  CANADIAN	
  INSOLVENCY	
  LEGISLATION	
  	
  	
   In	
   Canada,	
   the	
   primary	
   statutes	
   regulating	
   bankruptcy	
   and	
   insolvency	
   laws169	
  are	
   the	
  Bankruptcy	
  and	
  Insolvency	
  Act	
  (BIA)170 	
  and	
  the	
  CCAA.	
  	
  The	
  BIA	
  is	
  a	
  detailed	
  code	
   whereas	
  the	
  CCAA	
  is	
  adaptable	
  in	
  nature,	
  thereby	
  enabling	
  the	
  court	
  more	
  flexibility	
   in	
   its	
   application	
   to	
   insolvency	
   cases. 171 	
  	
   However,	
   both	
   acts	
   provide	
   “a	
   complimentary	
  and	
  inter-­‐related	
  scheme	
  for	
  dealing	
  with	
  the	
  property	
  of	
  insolvent	
   companies.”172	
  	
   The	
  CCAA’s	
  elasticity	
  has	
  enabled	
  Canadian	
  courts	
  to	
  not	
  only	
  adapt	
   to	
   foreign	
   doctrines	
   applied	
   in	
   cross-­‐border	
   proceedings,	
   but	
   it	
   has	
   also	
   enabled	
   the	
   Canadian	
   courts	
   to	
   adopt	
   foreign	
   practices	
   and	
   incorporate	
   these	
   practices	
   into	
   Canadian	
  insolvency	
  proceedings.	
  	
  The	
  adoption	
  of	
  credit	
  bidding	
  into	
  Canada	
  is	
  one	
   such	
   example.	
   	
   And	
   while	
   the	
   Canadian	
   bankruptcy	
   legislation	
   makes	
   no	
   mention	
   of	
   credit	
   bidding,	
   this	
   void,	
   however,	
   has	
   not	
   hampered	
   the	
   courts	
   from	
   using	
   their	
   broad	
  statutory	
  authority	
  to	
  import	
  credit	
  bidding	
  into	
  insolvency	
  proceedings.173	
  	
  	
   	
   Although	
   the	
   BIA	
   and	
   the	
   CCAA	
   make	
   no	
   specific	
   mention	
   of	
   credit	
   bidding,	
   provisions	
   analogous	
   to	
   the	
   US	
   provisions,	
   which	
   enable	
   a	
   debtor	
   to	
   sell	
   assets	
   during	
  the	
  course	
  of	
  a	
  restructuring	
  or	
  bankruptcy,	
  can	
  be	
  found	
  in	
  both.	
  	
  It	
  should	
   be	
  noted	
  that	
  the	
  PPSA	
  and	
  Canadian	
  insolvency	
  legislation	
  operate	
  in	
  tandem	
  once	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   169 	
  The	
  Winding-­‐up	
  and	
  Restructuring	
  Act,	
  RSC	
  1985,	
  c	
  W-­‐11,	
  as	
  amended	
  and	
  Farm	
  Debt	
  Mediation	
   Act,	
  SC	
  1997,	
  c	
  21,	
  as	
  amended	
  are	
  not	
  addressed	
  in	
  this	
  thesis.	
   170  Bankruptcy	
  and	
  Insolvency	
  Act,	
  RSC	
  1985,	
  c.	
  B-­‐3,	
  as	
  amended	
  [BIA].	
    171 	
  David	
  E.	
  Baird,	
  Q.C.,	
  Baird’s	
  Practical	
  Guide	
  to	
  the	
  Companies’	
  Creditors	
  Arrangement	
  Act,	
    (Toronto:	
  Carswell,	
  2009)	
  at	
  9.	
   172 	
  Ibid	
  at	
  10.	
   173 	
  See	
  CCAA,	
  supra	
  note	
  6,	
  s	
  11;	
  	
  Century	
  Services	
  Inc.	
  v	
  Canada	
  (Attorney	
  General),	
  2010	
  SCC	
  60	
  at	
   paras	
  63-­‐68,	
  [2010]	
  3	
  SCR	
  379	
  [Century	
  Services].	
    	
    48	
    the	
  debtor	
  enters	
  into	
  financial	
  distress.174	
  	
  Hence,	
  it	
  would	
  not	
  be	
  difficult	
  to	
  import	
   credit	
   bidding	
   from	
   insolvency	
   legislation	
   into	
   commercial	
   legislation,	
   and	
   vice	
   versa.	
  	
  	
   	
  	
  	
   On	
  September	
  18,	
  2009,	
  section	
  36	
  of	
  the	
  CCAA	
  and	
  section	
  65.13	
  of	
  the	
  BIA	
  came	
   into	
   force.	
   In	
   putting	
   forward	
   its	
   recommendation	
   to	
   enact	
   these	
   provisions,	
   the	
   Senate’s	
   Standing	
   Committee	
   on	
   Banking,	
   Trade	
   and	
   Commerce	
   listed	
   certain	
   pre-­‐ requisites	
  to	
  sustain	
  a	
  useful	
  insolvency	
  system.	
  	
  Fairness	
  and	
  predictability	
  were	
  at	
   the	
   forefront	
   of	
   this	
   list.175	
  	
   Of	
   particular	
   note,	
   the	
   Committee	
   emphasized	
   that	
   “fairness	
   and	
   predictability	
   provided	
   by	
   [insolvency]	
   laws	
   increase	
   the	
   amount	
   of	
   credit	
  that	
  is	
  available	
  and	
  help	
  to	
  ensure	
  that	
  it	
  is	
  available	
  at	
  reasonable	
  cost.”176	
  	
   Section	
  65.13	
  of	
  the	
  BIA	
  states:	
    	
    (1)	
   An	
   insolvent	
   person	
   in	
   respect	
   of	
   whom	
   a	
   notice	
   of	
   intention	
   is	
   filed	
   under	
   section	
   50.4	
   or	
   a	
   proposal	
   is	
   filed	
   under	
   subsection	
   62(1)	
   may	
   not	
   sell	
   or	
   otherwise	
   dispose	
   of	
   assets	
   outside	
   the	
   ordinary	
   course	
   of	
   business	
  unless	
  authorized	
  to	
  do	
  so	
  by	
  a	
  court.	
  Despite	
  any	
  requirement	
   for	
  shareholder	
  approval,	
  including	
  one	
  under	
  federal	
  or	
  provincial	
  law,	
   the	
   court	
   may	
   authorize	
   the	
   sale	
   or	
   disposition	
   even	
   if	
   shareholder	
   approval	
  was	
  not	
  obtained.177	
   (4)	
   In	
   deciding	
   whether	
   to	
   grant	
   the	
   authorization,	
   the	
   court	
   is	
   to	
   consider,	
  among	
  other	
  things,	
  	
   (a)	
   whether	
  the	
  process	
  leading	
  to	
  the	
  proposed	
  sale	
  or	
  disposition	
   was	
  reasonable	
  in	
  the	
  circumstances;	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   174 	
  See	
  Anthony	
  Duggan	
  &	
  Jacob	
  Ziegel,	
  “Special	
  Issue:	
  Education,	
  Administration,	
  and	
  Justice:	
  Essays	
   in	
  Honor	
  of	
  Frank	
  Iacobucci:	
  II.	
  Commercial	
  Law:	
  Justice	
  Iacobucci	
  and	
  the	
  Canadian	
  Law	
  of	
  Deemed	
   Trusts	
  and	
  Chattel	
  Security”	
  (2007)	
  57	
  UTLJ	
  227.	
   175 	
  Senate,	
  Standing	
  Committee	
  on	
  Banking,	
  Trade	
  and	
  Commerce,	
  Debtors	
  and	
  Creditors	
  Sharing	
  the	
   Burden:	
  A	
  Review	
  of	
  the	
  Bankruptcy	
  and	
  Insolvency	
  Act	
  and	
  the	
  Companies’	
  Creditors	
  Arrangement	
  Act	
   (November	
  2003)	
  at	
  5	
  (Chair	
  Richard	
  H.	
  Kroft)	
  [Standing	
  Committee].	
   176 	
  Standing	
  Committee,	
  ibid	
  at	
  10.	
  	
   177 	
  BIA,	
  supra	
  note	
  170,	
  s	
  65.13(1).	
    	
    49	
    	
    (b)	
  whether	
   the	
   trustee	
   approved	
   the	
   process	
  leading	
   to	
   the	
   proposed	
   sale	
  or	
  disposition;	
   (c)	
  whether	
   the	
   trustee	
   filed	
   with	
   the	
   court	
   a	
   report	
   stating	
   that	
   in	
   their	
   opinion	
   the	
   sale	
   or	
   disposition	
   would	
   be	
   more	
   beneficial	
   to	
   the	
   creditors	
  than	
  a	
  sale	
  or	
  disposition	
  under	
  a	
  bankruptcy;	
   (d)	
  the	
  extent	
  to	
  which	
  the	
  creditors	
  were	
  consulted;	
   (e)	
  the	
   effects	
   of	
   the	
   proposed	
   sale	
   or	
   disposition	
   on	
   the	
   creditors	
   and	
  other	
  interested	
  parties;	
  and	
  	
   (f)	
  whether	
   the	
   consideration	
   to	
   be	
   received	
   for	
   the	
   assets	
   is	
   reasonable	
  and	
  fair,	
  taking	
  into	
  account	
  their	
  market	
  value.178	
   (7)	
  The	
  court	
  may	
  authorize	
  a	
  sale	
  or	
  disposition	
  free	
  and	
  clear	
  of	
  any	
   security,	
   charge	
   or	
   other	
   restriction	
   and,	
   if	
   it	
   does,	
   it	
   shall	
   also	
   order	
   that	
  other	
  assets	
  of	
  the	
  insolvent	
  person	
  or	
  the	
  proceeds	
  of	
  the	
  sale	
  or	
   disposition	
  be	
  subject	
  to	
  a	
  security,	
  charge	
  or	
  other	
  restriction	
  in	
  favour	
   of	
   the	
   creditor	
   whose	
   security,	
   charge	
   or	
   other	
   restriction	
   is	
   to	
   be	
   affected	
  by	
  the	
  order.179	
  	
    	
   Subsection	
   65.13(1)	
   allows	
   the	
   court	
   to	
   authorize	
   a	
   sale	
   of	
   the	
   debtor’s	
   assets.	
  	
   Subsection	
   (4)	
   requires	
   the	
   court	
   to	
   take	
   into	
   consideration	
   whether	
   the	
   sale	
   is	
   reasonable	
   in	
   the	
   given	
   circumstances,	
   any	
   effects	
   the	
   sale	
   will	
   have	
   on	
   creditors	
   and	
  whether	
  the	
  consideration	
  received	
  is	
  reasonable.	
  	
  Subsection	
  (7)	
  then	
  enables	
   the	
  court	
  to	
  authorize	
  the	
  sale	
  free	
  and	
  clear	
  of	
  any	
  security	
  interest.	
  	
  Subsection	
  (7)	
   is	
   analogous	
   to	
   §	
   363(k)	
   of	
   the	
   US	
   Bankruptcy	
   Code,	
   whereby	
   the	
   court	
   may	
   authorize	
   an	
   asset	
   sale	
   free	
   and	
   clear	
   of	
   liens.	
   	
   However,	
   instead	
   of	
   specifically	
   mentioning	
  that	
  creditors	
  may	
  then	
  credit	
  bid	
  on	
  the	
  asset,	
  the	
  BIA	
  states	
  that	
  effects	
   on	
   creditors	
   should	
   be	
   kept	
   in	
   mind	
   and	
   the	
   consideration	
   must	
   be	
   fair	
   and	
   reasonable,	
  even	
  when	
  there	
  is	
  a	
  dissenting	
  creditor.	
  	
  	
   	
   Similarly,	
  section	
  36	
  of	
  the	
  CCAA	
  reads:	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   178 	
  BIA,	
  supra	
  note	
  170,	
  s	
  65.13(4)	
  [emphasis	
  added].	
   179 	
  BIA,	
  supra	
  note	
  170,	
  s	
  65.13(7)	
  [emphasis	
  added].	
   	
    50	
    (1)	
  A	
   debtor	
   company	
   in	
   respect	
   of	
   which	
   an	
   order	
   has	
   been	
   made	
   under	
   this	
   Act	
   may	
   not	
   sell	
   or	
   otherwise	
   dispose	
   of	
   assets	
   outside	
   the	
   ordinary	
   course	
   of	
   business	
   unless	
   authorized	
   to	
   do	
   so	
   by	
   a	
   court.	
   Despite	
  any	
  requirement	
  for	
  shareholder	
  approval,	
  including	
  one	
  under	
   federal	
   or	
   provincial	
   law,	
   the	
   court	
   may	
   authorize	
   the	
   sale	
   or	
   disposition	
  even	
  if	
  shareholder	
  approval	
  was	
  not	
  obtained.180	
   	
   (3)	
  In	
   deciding	
   whether	
   to	
   grant	
   the	
   authorization,	
   the	
   court	
   is	
   to	
   consider,	
  among	
  other	
  things,	
   (a)	
  whether	
   the	
   process	
   leading	
   to	
   the	
   proposed	
   sale	
   or	
   disposition	
   was	
  reasonable	
  in	
  the	
  circumstances;	
   (b)	
  whether	
   the	
   monitor	
   approved	
   the	
   process	
   leading	
   to	
   the	
   proposed	
  sale	
  or	
  disposition;	
   (c)	
  whether	
   the	
   monitor	
   filed	
   with	
   the	
   court	
   a	
   report	
   stating	
   that	
   in	
   their	
   opinion	
   the	
   sale	
   or	
   disposition	
   would	
   be	
   more	
   beneficial	
   to	
   the	
   creditors	
  than	
  a	
  sale	
  or	
  disposition	
  under	
  a	
  bankruptcy;	
   (d)	
  the	
  extent	
  to	
  which	
  the	
  creditors	
  were	
  consulted;	
   (e)	
  the	
   effects	
   of	
   the	
   proposed	
   sale	
   or	
   disposition	
   on	
   the	
   creditors	
   and	
   other	
  interested	
  parties;	
  and	
   (f)	
  whether	
   the	
   consideration	
   to	
   be	
   received	
   for	
   the	
   assets	
   is	
   reasonable	
  and	
  fair,	
  taking	
  into	
  account	
  their	
  market	
  value.181	
    	
    (6)	
  The	
  court	
  may	
  authorize	
  a	
  sale	
  or	
  disposition	
  free	
  and	
  clear	
  of	
  any	
   security,	
   charge	
   or	
   other	
   restriction	
   and,	
   if	
   it	
   does,	
   it	
   shall	
   also	
   order	
   that	
   other	
   assets	
   of	
   the	
   company	
   or	
   the	
   proceeds	
   of	
   the	
   sale	
   or	
   disposition	
  be	
  subject	
  to	
  a	
  security,	
  charge	
  or	
  other	
  restriction	
  in	
  favour	
   of	
   the	
   creditor	
   whose	
   security,	
   charge	
   or	
   other	
   restriction	
   is	
   to	
   be	
   affected	
  by	
  the	
  order.182	
    Prior	
  to	
  this	
  2009	
  amendment,	
  the	
  court	
  had	
  statutory	
  authority	
  and	
  discretion	
  as	
  to	
   whether	
   or	
   not	
   to	
   approve	
   asset	
   sales.	
   	
   Yet,	
   both	
   the	
   Joint	
   Task	
   Force	
   on	
   Business	
   Insolvency	
   Law	
   Reform 183 	
  and	
   the	
   Standing	
   Committee 184 	
  regarded	
   the	
   non-­‐  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   180 	
  CCAA,	
  supra	
  note	
  6,	
  s	
  36(1).	
   181 	
  CCAA,	
  supra	
  note	
  6,	
  s	
  36(3).	
   182 	
  CCAA,	
  supra	
  note	
  6,	
  s	
  36(6)	
  [emphasis	
  added].	
   183 	
  Joint	
  Task	
  Force	
  on	
  Business	
  Insolvency	
  Law	
  Reform,	
  Business	
  Insolvency	
  Law	
  Reform	
  Report:	
   Schedule	
  B,	
  (March	
  2002)	
  at	
  14,	
  online:	
   <http://www.cairp.ca/_files/file.php?fileid=fileHoWHdncscY&filename=file_2002ReportScheduleB.p df>.	
   184 	
  Standing	
  Committee,	
  supra	
  note	
  175	
  at	
  146.	
    	
    51	
    exhaustive	
   list	
   of	
   factors	
   in	
   section	
   36	
   as	
   providing	
   “substantive	
   direction”	
   to	
   the	
   court	
  in	
  regards	
  to	
  asset	
  sale	
  approvals.	
  	
  	
   	
   However,	
   one	
   author	
   argues	
   that	
   the	
   courts	
   have	
   “largely	
   ignored	
   s.	
   36	
   as	
   a	
   substantive	
  test	
  for	
  whether	
  to	
  approve	
  asset	
  sales,”	
  instead	
  relying	
  on	
  common	
  law	
   criteria.185	
  	
   For	
   example,	
   in	
   Re	
   Brainhunter	
   Inc.,	
   Justice	
   Morawetz	
   stated	
   that	
   a	
   distinction	
  should	
  be	
  made	
  between	
  the	
  approval	
  of	
  a	
  sale	
  process	
  and	
  approval	
  of	
   an	
  actual	
  sale.186	
  	
   In	
  approving	
  a	
  sale	
  process,	
  Justice	
  Morawetz	
  found	
  that	
  it	
  is	
  the	
   Nortel	
  criteria187	
  that	
   are	
   engaged,	
   whereas	
   section	
   36	
   is	
   engaged	
   when	
   approving	
   an	
  actual	
  sale.188 	
  	
  	
   	
   The	
   Nortel	
   criteria	
   set	
   out	
   the	
   following	
   when	
   determining	
   whether	
   to	
   approve	
   a	
   sale	
  process	
  in	
  the	
  absence	
  of	
  a	
  plan:	
    	
    (a) is	
  a	
  sale	
  transaction	
  warranted	
  at	
  this	
  time?	
   (b) will	
  the	
  sale	
  benefit	
  the	
  whole	
  “economic	
  community”?	
   (c) do	
   any	
   of	
   the	
   debtors’	
   creditors	
   have	
   a	
   bona	
  fide	
   reason	
   to	
   object	
   to	
   a	
  sale	
  of	
  the	
  business?	
   (d) is	
  there	
  a	
  better	
  viable	
  alternative?189	
    These	
   criteria	
   have	
   since	
   become	
   the	
   cornerstone	
   in	
   deciding	
   whether	
   to	
   approve	
   asset	
  sales,	
  especially	
  in	
  Ontario	
  cases.190	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   185 	
  Alfonso	
  Nocilla,	
  “Asset	
  Sales	
  Under	
  the	
  Companies’	
  Creditors	
  Arrangement	
  Act	
  and	
  the	
  Failure	
  of	
   Section	
  36”	
  Can	
  Bus	
  LJ	
  52	
  (2012)	
  226	
  at	
  226.	
  	
  	
   186 	
  Brainhunter	
  Inc.,	
  Re,	
  [2009]	
  OJ	
  No	
  5578	
  at	
  paras	
  16-­‐17,	
  62	
  CBR	
  (5th)	
  41.	
   187 	
  Nortel	
  Networks	
  Corp.,	
  Re,	
  [2009]	
  OJ	
  	
  No	
  3169,	
  55	
  CBR	
  (5th)	
  229	
  [Nortel].	
   188 	
  Brainhunter	
  Inc.,	
  Re,	
  supra	
  note	
  186	
  at	
  paras	
  16-­‐17.	
   189 	
  Nortel,	
  supra	
  note	
  187	
  at	
  para	
  49.	
  	
   190 	
  See	
  Clothing	
  for	
  Modern	
  Times	
  Ltd.,	
  Re,	
  2011	
  ONSC	
  7522,	
  88	
  CBR	
  (5th)	
  329;	
  Sino-­‐Forest	
  Corp.,	
  Re,	
   2012	
  ONSC	
  2063,	
  213	
  ACWS	
  (3d)	
  831.	
   	
    52	
    	
   	
  Yet,	
   as	
   Alfonso	
   Nocilla	
   noted,	
   “it	
   is	
   difficult	
   to	
   imagine	
   many	
   cases	
   where	
   a	
   court	
   would	
   hold	
   that	
   s.	
   36	
   has	
   not	
   been	
   satisfied	
   at	
   the	
   conclusion	
   of	
   a	
   sale	
   process	
   approved	
  under	
  the	
  Nortel	
  criteria.”191 	
  	
  Accordingly,	
  the	
  courts	
  would	
  generally	
  have	
   to	
  approve	
  the	
  subsequent	
  sale	
  of	
  assets	
  following	
  the	
  approval	
  of	
  the	
  sale	
  process.	
  	
   Hence,	
   if	
   section	
   36	
   is	
   not	
   referenced	
   during	
   the	
   approval	
   of	
   the	
   sale	
   process	
   and	
   only	
  at	
  the	
  actual	
  sale,	
  with	
  primary	
  regard	
  being	
  given	
  to	
  the	
  Nortel	
  criteria,	
  then	
   section	
   36	
   can	
   hardly	
   be	
   giving	
   the	
   court	
   the	
   “substantive	
   direction”	
   that	
   it	
   was	
   meant	
  to	
   achieve.192	
  	
   A	
   similar	
   rendering	
  of	
  section	
  36	
  is	
  given	
  by	
  the	
  court	
  in	
   White	
   Birch,	
  whereby	
  Justice	
  Mongeon	
  found	
  that	
  section	
  36	
  was	
  not	
  limitative	
  nor	
  did	
  all	
   the	
   criteria	
   need	
   to	
   be	
   met	
   in	
   order	
   for	
   the	
   court	
   to	
   approve	
   a	
   sale.193	
  	
   Instead,	
   he	
   emphasized	
  reviewing	
  the	
  transaction	
  as	
  a	
  whole	
  to	
  verify	
  that	
  the	
  sale	
  is	
  fair	
  and	
   reasonable	
  in	
  the	
  given	
  circumstances.194	
  	
  	
   	
   The	
   court	
   in	
   Aveos	
   Fleet	
   Performance	
   Inc.	
   was	
   less	
   dismissive	
   in	
   its	
   view	
   of	
   the	
   section	
  36	
  factors.	
  	
  It	
  acknowledged	
  that	
  section	
  36(3)	
  “lists	
  some	
  of	
  the	
  factors	
  that	
   the	
  Court	
  considers	
  before	
  authorizing	
  a	
  sale	
  of	
  assets.”195	
  	
   The	
  court	
  then	
  went	
  on	
   to	
   state	
   that	
   these	
   factors	
   “largely	
   overlap”196	
  with	
   the	
   criteria	
   outlined	
   in	
   Royal	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   191 	
  Nocilla,	
  supra	
  note	
  185	
  at	
  241.	
  	
   192 	
  Nocilla,	
  supra	
  note	
  185	
  at	
  241.	
   193 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  48.	
   194 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  49.	
   195 	
  Aveos	
  Fleet	
  Performance	
  Inc./	
  Aveos	
  performance	
  aeronautique	
  inc.	
  (Arrangement	
  relatif	
  à),	
  2012	
   QCCS	
  4074	
  at	
  para	
  49,	
  [2012]	
  QJ	
  No	
  18503	
  [Aveos	
  Fleet	
  Performance	
  Inc.].	
   196 	
  Aveos	
  Fleet	
  Performance	
  Inc.,	
  ibid	
  at	
  para	
  50.	
  	
    	
    53	
    Bank	
  v.	
  Soundair	
  Corp.,197	
  which	
  the	
  court	
  also	
  ought	
  to	
  consider.	
  	
  In	
  summary,	
  while	
   it	
  appears	
  as	
  if	
  the	
  courts	
  have	
  used	
  a	
  combination	
  of	
  jurisprudence	
  and	
  statute	
  in	
   determining	
  whether	
  to	
  approve	
  an	
  asset	
  sale,	
  it	
  is	
  debatable	
  as	
  to	
  whether	
  section	
   36	
  is	
  providing	
  the	
  meaningful	
  guidance	
  intended	
  by	
  the	
  legislature.	
  	
  	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   197 	
  Royal	
  Bank	
  v	
  Soundair	
  Corp.	
  (1991),	
  7	
  CBR	
  (3d)	
  1,	
  4	
  OR	
  (3d)	
  1	
  (Ont	
  CA).	
   	
    54	
    CHAPTER	
  6:	
  CANADIAN	
  CASE	
  LAW	
  	
   6.1	
  Introduction	
   The	
  Canadian	
  case	
  law	
  pertaining	
  to	
  credit	
  bidding	
  is	
  particularly	
  limited,	
  with	
  few	
   cases	
   discussing	
   the	
   advantages	
   and	
   disadvantages.	
   	
   The	
   poor	
   supply	
   of	
   case	
   law	
   on	
   the	
   matter	
   can	
   most	
   likely	
   be	
   attributed	
   to	
   the	
   fact	
   that	
   there	
   are	
   “few	
   cases	
   in	
   Canada	
  to	
  date	
  in	
  which	
  secured	
  creditors	
  have	
  sought	
  to	
  use	
  a	
  credit	
  bid	
  to	
  acquire	
   the	
   assets	
   of	
   a	
   debtor	
   in	
   the	
   context	
   of	
   a	
   competitive	
   and/or	
   contested	
   auction	
   process.”198 	
  	
   Hence,	
   credit	
   bidding	
   has	
   entered	
   into	
   Canada	
   without	
   much	
   inquiry	
   from	
  the	
  courts	
  as	
  to	
  its	
  validity.	
  	
  Credit	
  bidding,	
  in	
  form	
  but	
  not	
  in	
  nomenclature,	
   had	
   been	
   approved	
   in	
   an	
   auction	
   under	
   the	
   CCAA	
   in	
   Brainhunter.199	
  	
   Re	
   Canwest	
   Publishing	
   Inc.	
   also	
   discussed	
   credit	
   bidding,	
   albeit	
   under	
   a	
   different	
   guise	
   called	
   “credit	
  acquisition”	
  and	
  in	
  the	
  context	
  of	
  a	
  stalking	
  horse	
  bid.200	
  	
   	
   Yet,	
   the	
  first	
  Canadian	
  case	
  to	
  delve	
  into	
  several	
  aspects	
  of	
  credit	
  bidding	
  was	
  White	
   Birch	
  Paper	
  Holding	
  Company.201	
  	
  Subsequent	
  cases	
  have	
  done	
  little	
  to	
  expand	
  on	
  the	
   analysis	
  presented	
  in	
  White	
  Birch.202	
  	
  Accordingly,	
  a	
  detailed	
  review	
  of	
  White	
  Birch	
  is	
   essential	
  to	
  understanding	
  the	
  concept	
  of	
  credit	
  bidding	
  as	
  it	
  stands	
  in	
  Canada.	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   198 	
  Joe	
  Latham	
  et	
  al,	
  “Credit	
  Bidding	
  in	
  Canada	
  –	
  Recent	
  Developments”	
  (2011)	
  27:1	
  BFLR	
  93	
  at	
  93	
   [emphasis	
  added].	
   199 	
  Brainhunter,	
  Inc.,	
  Re,	
  2010	
  ONSC	
  1035,	
  70	
  BLR	
  (4th)	
  123	
  (court	
  approved	
  the	
  use	
  of	
  secured	
   notes	
  held	
  by	
  the	
  creditors	
  to	
  be	
  used	
  as	
  “additional	
  consideration	
  in	
  the	
  auction	
  if	
  it	
  were	
  necessary	
   to	
  increase	
  its	
  bid”	
  at	
  para	
  7)	
  [Brainhunter].	
   200 	
  Canwest	
  Publishing	
  Inc.	
  (Re),	
  2010	
  ONSC	
  222,	
  [2010]	
  OJ	
  No	
  188	
  [Canwest	
  Publishing	
  Inc.].	
  	
  	
   201 	
  White	
  Birch,	
  supra	
  note	
  13.	
   202 	
  See	
  CCM	
  Master,	
  supra	
  note	
  28	
  (court	
  stated	
  that	
  the	
  use	
  of	
  credit	
  bid	
  stalking	
  horses	
  “has	
  been	
   recognized	
  by	
  Canadian	
  courts	
  as	
  a	
  reasonable	
  and	
  useful	
  element	
  of	
  a	
  sales	
  process”	
  at	
  para	
  7).	
    	
    55	
    6.2	
  White	
  Birch	
  –	
  Quebec	
  Superior	
  Court	
  Decision	
   6.2.1	
  Background	
   On	
   February	
   24,	
   2010,	
   White	
   Birch	
   Paper	
   Holding	
   Company	
   and	
   its	
   subsidiaries	
   (“White	
   Birch”)	
   filed	
   for	
   protection	
   under	
   the	
   CCAA.	
   	
   White	
   Birch	
   is	
   a	
   Nova	
   Scotia	
   company	
   with	
   operations	
   located	
   primarily	
   in	
   Quebec.203 	
  	
   Its	
   assets	
   in	
   Quebec	
   included	
   three	
   pulp	
   and	
   paper	
   mills.	
   	
   A	
   fourth	
   mill	
   was	
   located	
   in	
   the	
   state	
   of	
   Virginia	
  and	
  operated	
  by	
  Bear	
  Island	
  Paper	
  Company	
  LLC	
  (“Bear	
  Island”),	
  an	
  affiliate	
   of	
  White	
  Birch.	
  	
  	
   	
   While	
  White	
  Birch	
  had	
  a	
  market	
  share	
  of	
  nearly	
  12%	
  of	
  the	
  newsprint	
  industry	
  with	
   annual	
   net	
   sales	
   reaching	
   $667	
   million,204	
  the	
   recent	
   economic	
   downturn	
   coupled	
   with	
  the	
  ever-­‐expanding	
  usage	
  of	
  online	
  media	
  left	
  White	
  Birch	
  unable	
  to	
  meet	
  its	
   financial	
  obligations.205	
  	
   White	
  Birch’s	
  principal	
  debt	
  obligations	
  consisted	
  of	
  a	
  First	
   Lien	
  Term	
  Loan	
  with	
  US$438	
  million	
  in	
  principal	
  and	
  interest	
  owed,	
  a	
  Second	
  Lien	
   Term	
   Loan	
   with	
   US$104	
   million	
   in	
   principal	
   and	
   interest	
   owed,	
   and	
   a	
   Revolving	
   Asset-­‐Based	
   Facility	
   with	
   US$50	
   million	
   in	
   principal	
   and	
   interest	
   outstanding.	
   Additionally,	
  White	
  Birch	
  was	
  involved	
  in	
  several	
  interest	
  rate	
  swaps	
  that	
  left	
  them	
   owing	
  approximately	
  US$58	
  million.	
  206	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   203 	
  White	
  Birch,	
  supra	
  note	
  13	
  (Reasons	
  for	
  Judgment	
  on	
  Petitioners’	
  Motion	
  for	
  the	
  Issuance	
  of	
  an	
   Initial	
  Order)	
  (4	
  March	
  2010),	
  Montreal	
  500-­‐11-­‐038474-­‐108	
  (QC	
  Sup	
  Ct)	
  at	
  para	
  3,	
  online:	
  Ernst	
  &	
   Young	
  Canada	
   <http://documentcentre.eycan.com/eycm_library/128/English/Canadian%20Proceedings/Court%2 0Orders/01%20-­‐ %20Initial%20Order%20dated%20February%2024,%202010/ReasonsforJudgementMar1710eng.p df>.	
   204 	
  Ibid	
  at	
  paras	
  16-­‐17.	
   205 	
  Ibid	
  at	
  paras	
  44,	
  47.	
   206 	
  Ibid	
  at	
  para	
  56-­‐57.	
    	
    56	
    	
   With	
  a	
  liquidity	
  crisis	
  looming,	
  White	
  Birch	
  sought	
  an	
  Initial	
  Order	
  under	
  the	
  CCAA	
   on	
   February	
   24,	
   2010.	
   	
   On	
   the	
   same	
   day,	
   Bear	
   Island	
   filed	
   for	
   protection	
   under	
   Chapter	
  11	
  of	
  the	
  US	
  Bankruptcy	
  Code.	
  	
  	
   	
   On	
   April	
   28,	
   2010,	
   the	
   US	
   Bankruptcy	
   Court	
   for	
   the	
   Eastern	
   District	
   of	
   Virginia	
   approved	
   the	
   Sale	
   and	
   Investor	
   Solicitation	
   Process	
   for	
   White	
   Birch’s	
   assets.	
   	
   The	
   Quebec	
  Superior	
  Court	
  issued	
  a	
  similar	
  order	
  the	
  following	
  day.	
  	
  On	
  March	
  26,	
  2010,	
   the	
  US	
  Bankruptcy	
  Court	
  issued	
  an	
  order	
  recognizing	
  the	
   CCAA	
  proceedings	
  as	
  the	
   “foreign	
   main	
   proceeding.” 207 	
  	
   Hereafter,	
   White	
   Birch	
   and	
   Bear	
   Island	
   will	
   be	
   referred	
  to	
  as	
  the	
  “WB	
  Group.”	
  	
  	
   	
   Several	
   third	
   parties	
   expressed	
   interest	
   in	
   the	
   WB	
   Group	
   assets,	
   which	
   led	
   to	
   an	
   Asset	
  Sale	
  Agreement	
  between	
  the	
  WB	
  Group	
  and	
  BD	
  White	
  Birch	
  Investment	
  LLC	
   (“BD	
   White	
   Birch”).	
   	
   BD	
   White	
   Birch	
   was	
   to	
   acquire	
   the	
   assets	
   through	
   a	
   stalking	
   horse	
   bid	
   process.	
   	
   	
   Both	
   the	
   US	
   Bankruptcy	
   Court	
   and	
   the	
   Quebec	
   Superior	
   Court	
   issued	
   orders	
   approving	
   the	
   Asset	
   Sale	
   Agreement	
   and	
   the	
   stalking	
   horse	
   bid	
   process,	
  with	
  only	
  a	
  few	
  modifications	
  made	
  by	
  the	
  Quebec	
  Superior	
  Court.	
  	
  On	
  the	
   final	
  day	
  of	
  bidding,	
  September	
  17,	
  2010,	
  Sixth	
  Avenue	
  Investment	
  Co.	
  LLC	
  (“SAI”)	
   submitted	
  a	
  bid.	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   207 	
  White	
  Birch,	
  supra	
  note	
  13	
  (Order	
  Approving	
  the	
  Sale	
  and	
  Investor	
  Solicitation	
  Process)	
  (29	
  April	
   2010),	
  Montreal	
  500-­‐11-­‐038474-­‐108	
  (QC	
  Sup	
  Ct)	
  at	
  1,	
  online:	
  Ernst	
  &	
  Young	
  Canada	
   <http://documentcentre.eycan.com/eycm_library/128/English/Canadian%20Proceedings/Court%2 0Orders/05%20-­‐ %20Order%20Approving%20the%20Sale%20and%20Investor%20Solicitation%20Process/OrderA pprovingSISPApr2910eng.pdf	
  >.	
    	
    57	
    	
   On	
   September	
   21,	
   2010,	
   the	
   auction	
   process	
   began	
   with	
   the	
   winning	
   bid	
   coming	
   from	
   BD	
   White	
   Birch	
   at	
   US$236,052,825.00.	
   	
   SAI’s	
   bid	
   offered	
   US$500,000	
   less.	
  	
   However,	
   the	
   more	
   important	
   distinction	
   between	
   SAI’s	
   bid	
   and	
   BD	
   White	
   Birch’s	
   bid	
   stems	
   from	
   the	
   fact	
   that	
   BD	
   White	
   Birch’s	
   winning	
   bid	
   contained	
   a	
   credit	
   bid	
   valued	
  at	
  US$78	
  million	
  whereas	
  SAI	
  offered	
  the	
  additional	
  US$78	
  million	
  in	
  cash.	
  	
  	
   	
   Both	
  BD	
  White	
  Birch	
  and	
  SAI	
  were	
  former	
  lenders	
  of	
  the	
  WB	
  Group.	
  	
  BD	
  White	
  Birch	
   was	
   composed	
   of	
   various	
   lenders	
   from	
   their	
   First	
   Lien	
   Credit	
   Agreement,	
   whom	
   were	
   aggregately	
   owed	
   65%	
   of	
   the	
   First	
   Lien	
   debt.	
   	
   The	
   First	
   Lien	
   debt	
   was	
   secured	
   against	
   the	
   debtor’s	
   fixed	
   assets,	
   and	
   as	
   “majority	
   lenders”	
   under	
   the	
   First	
   Lien	
   Credit	
   Agreement,	
   the	
   BD	
   White	
   Birch	
   group	
   was	
   entitled	
   to	
   make	
   certain	
   decisions	
   including	
  the	
  right	
  to	
  use	
  their	
  security	
  in	
  the	
  fixed	
  assets	
  in	
  a	
  credit	
  bid.	
  	
  	
   	
   SAI	
   was	
   also	
   composed	
   of	
   lenders	
   from	
   the	
   First	
   Lien	
   Credit	
   Agreement,	
   however	
   they	
  only	
  held	
  approximately	
  10%	
  of	
  the	
  debt	
  owed.	
  	
  As	
  minority	
  lenders,	
  they	
  were	
   not	
  entitled	
  to	
  use	
  credit	
  bidding	
  as	
  a	
  component	
  of	
  their	
  submitted	
  bid.	
  	
  	
   	
   The	
  debtors	
  then	
  sought	
  an	
  order	
  to	
  approve	
  the	
  asset	
  sale	
  to	
  BD	
  White	
  Birch,	
  while	
   SAI	
  simultaneously	
  requested	
  that	
  the	
  application	
  to	
  approve	
  the	
  sale	
  be	
  dismissed	
   and	
  SAI	
  be	
  declared	
  the	
  winning	
  bidder.	
  	
   	
    	
    58	
    6.2.2	
  SAI’s	
  Arguments	
  Against	
  BD	
  White	
  Birch’s	
  Credit	
  Bid	
  	
   In	
  SAI’s	
  objections	
  against	
  the	
  sale	
  to	
  BD	
  White	
  Birch,	
  SAI	
  argued	
  that	
  as	
  agent	
  for	
   the	
   First	
   Lien	
   lenders,	
   BD	
   White	
   Birch	
   lacked	
   the	
   proper	
   authority	
   to	
   credit	
   bid	
   under	
   the	
   First	
   Lien	
   Credit	
   Agreement	
   since	
   it	
   had	
   not	
   obtained	
   the	
   minority	
   lenders’	
   approval	
   to	
   credit	
   bid.208	
  	
   SAI	
   went	
   on	
   to	
   say	
   that	
   the	
   credit	
   bid,	
   in	
   addition	
   to	
   the	
   US$4.5	
   million	
   in	
   cash	
   BD	
   White	
   Birch	
   attributed	
   to	
   the	
   fixed	
   assets,	
   essentially	
  allowed	
  BD	
  White	
  Birch	
  to	
  take	
  possession	
  of	
  the	
  US	
  mill	
  for	
  a	
  value	
  not	
   exceeding	
  the	
  US$4.5	
  million	
  offered.209	
  	
  SAI	
  claimed	
  that	
  “[b]y	
  keeping	
  the	
  U.S.	
  fixed	
   assets	
   for	
   themselves	
   at	
   the	
   expense	
   of	
   the	
   other	
   First	
   Lien	
   Lenders,	
   [BD	
   White	
   Birch]	
  clearly	
  placed	
  themselves	
  in	
  a	
  conflict	
  of	
  interest	
  and	
  breached	
  their	
  fiduciary	
   duties	
   as	
   agents…”210	
  	
   SAI	
   also	
   objected	
   to	
   the	
   importation	
   of	
   credit	
   bidding,	
   a	
   US	
   construct,	
   into	
   Canadian	
   insolvency	
   proceedings.	
   	
   They	
   argued	
   that	
   §	
   363(k)	
   was	
   contained	
   in	
   the	
   US	
   Bankruptcy	
  Code	
   and	
   therefore	
   could	
   not	
   operate	
   in	
   Canada.	
   	
   As	
   there	
  is	
  no	
  equivalent	
  of	
  §	
  363(k)	
  in	
  the	
  CCAA	
  or	
  in	
  any	
  Quebec	
  statutes,	
  the	
  secured	
   creditor,	
  or	
  in	
  this	
  case	
  BD	
  White	
  Birch,	
  could	
  therefore	
  only	
  “sue	
  on	
  the	
  covenant,	
   sell	
  the	
  collateral	
  or	
  take	
  all	
  of	
  the	
  collateral	
  in	
  payment	
  of	
  all	
  of	
  the	
  debt	
  secured	
  –	
   none	
  of	
  which	
  [was]	
  happening	
  here.”211 	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   208 	
  Latham,	
  supra	
  note	
  198	
  at	
  100.	
   209 	
  White	
  Birch,	
  supra	
  note	
  13	
  (Contestation	
  of	
  the	
  Debtors’	
  Motion	
  to	
  Approve	
  the	
  Sale	
  of	
   Substantially	
  All	
  of	
  the	
  WB	
  Group’s	
  Assets	
  and	
  Cross-­‐Demand	
  by	
  the	
  Intervening	
  Parties)	
  (23	
   September	
  2010),	
  Montreal	
  500-­‐11-­‐038474-­‐108	
  (QC	
  Sup	
  Ct)	
  at	
  para	
  18,	
  online:	
  Ernst	
  &	
  Young	
   Canada	
   <http://documentcentre.eycan.com/eycm_library/128/English/Canadian%20Proceedings/Motion %20Materials/Motion%20to%20approve%20a%20sale%20of%20substantially%20all%20assets% 20and%20related%20motions/Contestation%20Sixth%20Ave.PDF	
  >.	
   210 	
  Ibid	
  at	
  para	
  19.	
   211 	
  Ibid	
  at	
  para	
  28.	
    	
    59	
    6.2.3	
  BD	
  White	
  Birch	
  Pushes	
  Back	
   In	
  response,	
  BD	
  White	
  Birch	
  submitted	
  that	
  the	
  First	
  Lien	
  Credit	
  Agreement212,	
  the	
   US	
   First	
   Lien	
   Security	
   Agreement 213 	
  and	
   the	
   Canadian	
   Security	
   Agreement 214	
   entitled	
  the	
  “majority	
  lenders,”	
  as	
  defined	
  under	
  Section	
  1.1	
  of	
  the	
  First	
  Lien	
  Credit	
   Agreement,215	
  to	
  credit	
  bid	
  on	
  behalf	
  of	
  all	
  First	
  Lien	
  Lenders,	
  including	
  the	
  minority	
   lenders	
  making	
  up	
  the	
  SAI	
  group.	
  	
   	
   In	
   arguing	
   that	
   the	
   right	
   to	
   credit	
   bid	
   was	
   not	
   inconsistent	
   with	
   the	
   terms	
   of	
   the	
   CCAA,	
   BD	
   White	
   Birch	
   referenced	
   Re	
   Maax	
   Corp.216,	
   Brainhunter217	
  and	
   Re	
   Eddie	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   212 	
  White	
  Birch,	
  supra	
  note	
  13	
  (First	
  Lien	
  Credit	
  Agreement	
  cited	
  in	
  Intervention	
  and	
  Memorandum	
    of	
  Arguments	
  of	
  BD	
  White	
  Birch	
  Investment	
  LLC)	
  (23	
  September	
  2010),	
  Montreal	
  500-­‐11-­‐038474-­‐ 108	
  (QC	
  Sup	
  Ct),	
  online:	
  Ernst	
  &	
  Young	
  Canada	
   <http://documentcentre.eycan.com/eycm_library/128/English/Canadian%20Proceedings/Motion %20Materials/Motion%20to%20approve%20a%20sale%20of%20substantially%20all%20assets% 20and%20related%20motions/Intervention%20BDWBI.pdf>	
  (“Each	
  Lender	
  hereby	
  irrevocably	
   designates	
  and	
  appoints	
  the	
  Agents	
  as	
  the	
  agents	
  under	
  this	
  Agreement	
  and	
  the	
  other	
  Loan	
  Documents,	
   and	
  each	
  Lender	
  irrevocably	
  authorizes	
  each	
  Agent,	
  in	
  such	
  capacity,	
  to	
  take	
  such	
  action	
  on	
  its	
  behalf	
   under	
  the	
  provisions	
  of	
  the	
  Agreement	
  and	
  the	
  other	
  Loan	
  Documents…”	
  at	
  para	
  41)	
  [emphasis	
  in	
   Intervention].	
   213 	
  White	
  Birch,	
  supra	
  note	
  13	
  (US	
  First	
  Lien	
  Security	
  Agreement	
  cited	
  in	
  Intervention	
  and	
   Memorandum	
  of	
  Arguments	
  of	
  BD	
  White	
  Birch	
  Investment	
  LLC)	
  (23	
  September	
  2010),	
  Montreal	
  500-­‐ 11-­‐038474-­‐108	
  (QC	
  Sup	
  Ct),	
  online:	
  Ernst	
  &	
  Young	
  Canada	
   <http://documentcentre.eycan.com/eycm_library/128/English/Canadian%20Proceedings/Motion %20Materials/Motion%20to%20approve%20a%20sale%20of%20substantially%20all%20assets% 20and%20related%20motions/Intervention%20BDWBI.pdf>	
  (“[the	
  Agents]	
  shall	
  be	
  entitled,	
  for	
  the	
   purposes	
  of	
  bidding	
  and	
  making	
  settlement	
  or	
  payment	
  of	
  the	
  purchase	
  price	
  for	
  all	
  or	
  any	
  portion	
  of	
   the	
  [Collateral]	
  sold	
  at	
  any	
  such	
  sale	
  made	
  in	
  accordance	
  with	
  the	
  UCC,	
  to	
  use	
  and	
  apply	
  any	
  of	
  the	
   Secured	
  Obligations	
  as	
  a	
  credit	
  on	
  account	
  of	
  the	
  purchase	
  price	
  for	
  any	
  [Collateral]	
  payment	
  to	
  the	
  US	
   Collateral	
  Agent	
  at	
  such	
  sale.”	
  at	
  para	
  48)	
  [emphasis	
  in	
  Intervention].	
   214 	
  White	
  Birch,	
  supra	
  note	
  13	
  (Canadian	
  Security	
  Agreement	
  cited	
  in	
  Intervention	
  and	
  Memorandum	
   of	
  Arguments	
  of	
  BD	
  White	
  Birch	
  Investment	
  LLC)	
  (23	
  September	
  2010),	
  Montreal	
  500-­‐11-­‐038474-­‐ 108	
  (QC	
  Sup	
  Ct),	
  online:	
  Ernst	
  &	
  Young	
  Canada	
   <http://documentcentre.eycan.com/eycm_library/128/English/Canadian%20Proceedings/Motion %20Materials/Motion%20to%20approve%20a%20sale%20of%20substantially%20all%20assets% 20and%20related%20motions/Intervention%20BDWBI.pdf>.	
   215 	
  Supra	
  note	
  212.	
   216 	
  Maax	
  Corp.,	
  Re,	
  2008	
  CarswellQue	
  15021	
  (Qc	
  Sup	
  Ct).	
  	
   217 	
  Brainhunter,	
  supra	
  note	
  199.	
    	
    60	
    Bauer	
  of	
  Canada,	
  Inc.218	
  	
   In	
  all	
  three	
  cases,	
  the	
  courts	
  approved	
  bidding	
  procedures,	
   which	
   encompassed	
   credit	
   bidding.219	
  	
   Furthermore,	
   Re	
   Maax	
   Corp.	
   was	
   a	
   Quebec	
   Superior	
   Court	
   case,	
   which	
   demonstrated	
   that	
   credit	
   bidding	
   was	
   in	
   fact	
   accepted	
   not	
   only	
   by	
   the	
   federally	
   operating	
   CCAA,	
   but	
   also	
   at	
   the	
   Quebec	
   provincial	
   level.	
  	
   Several	
  provisions	
  of	
  the	
  Quebec	
   Code	
   of	
   Civil	
   Procedure	
  were	
  also	
  cited	
  supporting	
   this	
  premise.220	
   	
   6.2.4	
  The	
  Court’s	
  Opinion	
   As	
  noted	
  by	
  Joe	
  Latham	
  et	
  al,	
  the	
  court	
  in	
  White	
   Birch	
   relied	
  heavily	
  on	
  the	
  various	
   security	
   documents	
   provided	
   by	
   BD	
   White	
   Birch	
   in	
   supporting	
   BD	
   White	
   Birch’s	
   ability	
   to	
   credit	
   bid	
   rather	
   than	
   any	
   specific	
   legislation.221	
  	
   Justice	
   Mongeon	
   referred	
   to	
  the	
  Motion	
  to	
  Approve	
  the	
  Sale	
  of	
  the	
  Assets222	
  which	
  cites	
  paragraph	
  24	
  of	
  the	
   Sale	
  and	
  Investor	
  Solicitation	
  Process,	
  which	
  states:	
  	
   The	
   DIP	
   Agent	
   and	
   First	
   Lien	
   Term	
   Agent,	
   on	
   behalf	
   of	
   the	
   lenders	
   under	
  the	
  White	
  Birch	
  Dip	
  Facility	
  and	
  the	
  WB	
  Group’s	
  first	
  lien	
  term	
   loan	
  lenders,	
  respectively,	
  shall	
  be	
  permitted,	
  in	
  their	
  sole	
  discretion,	
   to	
   credit	
   bid	
  up	
  to	
  the	
  full	
  amount	
  of	
  any	
  allowed	
  secure	
  claims	
  under	
   the	
   White	
   Birch	
   DIP	
   Facility	
   and	
   the	
   first	
   lien	
   term	
   loan	
   agreement,	
   respectively,	
   to	
   the	
   extent	
   permitted	
   under	
   section	
   363(k)	
   of	
   the	
   Bankruptcy	
  Code	
  and	
  other	
  applicable	
  law.223	
    	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   218 	
  Eddie	
  Bauer	
  of	
  Canada,	
  Inc.	
  (Re),	
  [2009]	
  OJ	
  No	
  3784,	
  57	
  CBR	
  (5th)	
  241	
  (Bidding	
  Procedures).	
   219 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  n	
  7.	
   220 	
  Code	
  of	
  Civil	
  Procedure,	
  arts	
  689,	
  730	
  CCP.	
   221 	
  Latham,	
  supra	
  note	
  198	
  at	
  102.	
  	
   222 	
  White	
  Birch,	
  supra	
  note	
  13	
  (Motion	
  to	
  Approve	
  the	
  Sale	
  of	
  Substantially	
  All	
  the	
  WB	
  Group’s	
    Assets)	
  (23	
  September	
  2010),	
  Montreal	
  500-­‐11-­‐038474-­‐108	
  (QC	
  Sup	
  Ct)	
  at	
  para	
  7,	
  online:	
  Ernst	
  &	
   Young	
  Canada	
   <http://documentcentre.eycan.com/eycm_library/128/English/Canadian%20Proceedings/Motion %20Materials/Motion%20to%20approve%20a%20sale%20of%20substantially%20all%20assets% 20and%20related%20motions/Motion%20to%20Approve%20the%20Sale%20of%20Substantially %20All%20of%20the%20WB%20Group's%20Assets%20and%20List%20of%20Exhibits.pdf	
  >.	
   223 	
  Supra	
  note	
  207	
  at	
  para	
  24	
  [emphasis	
  added].	
    	
    61	
    A	
  similarly	
  worded	
  phrase	
  was	
  also	
  included	
  in	
  the	
  debtors’	
  motion	
  for	
  approval	
  of	
   the	
   bidding	
   procedure.	
   	
   Justice	
   Mongeon	
   reasoned	
   that	
   “other	
   applicable	
   law”	
   could	
   “tolerate	
   the	
   inclusion	
   of	
   similar	
   rules	
   of	
   procedure	
   in	
   the	
   province	
   of	
   Quebec.”224	
   Expanding	
   on	
   this,	
   Justice	
   Mongeon	
   stated	
   that	
   credit	
   bidding	
   was	
   not	
   foreign	
   to	
   Quebec,	
  citing	
  both	
  the	
  Quebec	
  Code	
  of	
  Civil	
  Procedure225	
  and	
  case	
  law226	
  in	
  support	
   of	
   this	
   conclusion.	
   	
   This	
   marks	
   an	
   important	
   difference	
   between	
   the	
   US	
   and	
   Canada,	
   where	
   credit	
   bidding	
   is	
   a	
   right227 	
  found	
   in	
   the	
   US	
   Bankruptcy	
  Code	
   versus	
   the	
   ability	
   to	
   credit	
   bid	
   in	
   the	
   Canadian	
   context	
   which	
   was	
   established	
   through	
   credit	
   agreements	
  and	
  security	
  documents.	
   	
   Having	
   noted	
   that	
   the	
   use	
   of	
   credit	
   bidding	
   by	
   BD	
   White	
   Birch	
   was	
   indeed	
   permissible,	
  Justice	
  Mongeon	
  then	
  addressed	
  the	
  appropriate	
  dollar	
  value	
  of	
  a	
  credit	
   bid.	
  	
  He	
  stated:	
   [I]t	
   goes	
   without	
   saying	
   that	
   the	
   amount	
   of	
   the	
   credit	
   bid	
   should	
   not	
   exceed,	
  but	
  should	
  be	
  allowed	
  to	
  go	
  as,	
  high	
  as	
  the	
  face	
  value	
  amount	
  of	
   the	
   credit	
   instrument	
   upon	
   which	
   the	
   credit	
   bidder	
   is	
   allowed	
   to	
   rely.	
  	
   The	
   credit	
   bid	
   should	
   not	
   be	
   limited	
   to	
   the	
   fair	
   market	
   value	
   of	
   the	
   corresponding	
  encumbered	
  assets.	
  	
  It	
  would	
  then	
  be	
  just	
  impossible	
  to	
   function	
   otherwise	
   because	
   it	
   would	
   require	
   an	
   evaluation	
   of	
   such	
   encumbered	
  assets,	
  a	
  difficult,	
  complex	
  and	
  costly	
  exercise.228	
  	
  	
  	
   	
   	
   Putting	
   to	
   rest	
   the	
   valuation	
   argument,	
   Justice	
   Mongeon	
   stated	
   that	
   if	
   the	
   “bitter	
   bidder”	
   had	
   taken	
   issue	
   with	
   the	
   bidding	
   process,	
   the	
   issue	
   should	
   have	
   been	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   224 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  31.	
  	
  	
   225 	
  Supra	
  note	
  220,	
  arts	
  689,	
  730.	
   226 	
  See	
  Cie	
  Montreal	
  Trust	
  c	
  Jori	
  Investments	
  Inc.,	
  JE	
  80-­‐220,	
  1980	
  CarswellQue	
  85	
  (Qc	
  Sup	
  Ct);	
   EugèneMarcouxInc.	
  c	
  Côté,	
  [1990]	
  RJQ	
  1221	
  (Qc	
  CA).	
  	
  	
   227 	
  Supra	
  note	
  52	
  (except	
  for	
  where	
  the	
  court	
  “for	
  cause	
  orders	
  otherwise”).	
  	
   228 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  34.	
   	
    62	
    addressed	
   at	
   an	
   earlier	
   time	
   when	
   the	
   debtor	
   had	
   brought	
   forth	
   the	
   motion	
   to	
   approve	
  the	
  auction	
  process.	
  	
  Justice	
  Mongeon	
  went	
  on	
  to	
  say	
  that	
  the	
  process	
  could	
   not	
  be	
  simply	
  invalidated	
  on	
  the	
  basis	
  of	
  credit	
  bidding	
  once	
  the	
  bidding	
  process	
  had	
   been	
   approved,	
   bids	
   had	
   been	
   placed	
   and	
   a	
   winner	
   had	
   been	
   decided.	
   	
   To	
   do	
   otherwise	
  would	
  be	
  the	
  equivalent	
  of	
  “a	
  complete	
  eradication	
  of	
  all	
  proceedings	
  and	
   judgments	
  rendered	
  to	
  this	
  date	
  with	
  respect	
  to	
  the	
  Sale	
  of	
  Assets	
  authorized	
  in	
  this	
   file	
   since	
   May/June	
   2010…”229 	
  	
   The	
   mere	
   fact	
   that	
   credit	
   bidding	
   had	
   been	
   an	
   authorized	
   option	
   available	
   to	
   BD	
   White	
   Birch,	
   as	
   found	
   in	
   the	
   prior	
   motions	
   and	
   agreements,	
  should	
  have	
  alerted	
  SIA	
  to	
  the	
  notion	
  that	
  BD	
  White	
  Birch	
  may	
  in	
  fact	
   avail	
  itself	
  of	
  credit	
  bidding	
  and	
  any	
  such	
  issue	
  SIA	
  then	
  may	
  have	
  had	
  with	
  credit	
   bidding	
  should	
  have	
  been	
  dealt	
  with	
  at	
  an	
  earlier	
  stage	
  in	
  the	
  form	
  of	
  a	
  proposal	
  to	
   modify	
   bidding	
   procedures.	
   	
   However,	
   no	
   such	
   step	
   was	
   taken	
   and	
   failure	
   to	
   recognize	
  credit	
  bidding	
  as	
  a	
  tool	
  that	
  BD	
  White	
  Birch	
  could	
  use	
  was	
  not	
  an	
  excuse	
   in	
   and	
   of	
   itself	
   to	
   justify	
   an	
   unfair	
   auction	
   nor	
   could	
   it	
   be	
   used	
   to	
   deem	
   SIA	
   the	
   winning	
   bidder.	
   	
   Even	
   when	
   SIA	
   had	
   learned	
   of	
   BD	
   White	
   Birch’s	
   credit	
   bid,	
   SIA	
   continued	
   to	
   engage	
   in	
   the	
   auction	
   process.	
   	
   Justice	
   Mongeon	
   found	
   that	
   SIA’s	
   continued	
   involvement	
   in	
   the	
   auction	
   was	
   evidence	
   that	
   SIA	
   did	
   not	
   actually	
   take	
   issue	
   with	
   the	
   credit	
   bid	
   component,	
   but	
   instead	
   with	
   the	
   outcome	
   as	
   the	
   losing	
   bidder.	
  	
  	
   	
   The	
   final	
   portion	
   of	
   Justice	
   Mongeon’s	
   reasons	
   dealt	
   with	
   the	
   newly	
   added	
   section	
   36	
  of	
  the	
  CCAA.	
  	
  Section	
  36	
  reads:	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   229 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  39.	
   	
    63	
    36.	
  (1)	
  A	
   debtor	
   company	
   in	
   respect	
   of	
   which	
   an	
   order	
   has	
   been	
   made	
   under	
   this	
   Act	
   may	
   not	
   sell	
   or	
   otherwise	
   dispose	
   of	
   assets	
   outside	
   the	
   ordinary	
   course	
   of	
   business	
   unless	
   authorized	
   to	
   do	
   so	
   by	
   a	
   court.	
   Despite	
  any	
  requirement	
  for	
  shareholder	
  approval,	
  including	
  one	
  under	
   federal	
  or	
  provincial	
  law,	
  the	
  court	
  may	
  authorize	
  the	
  sale	
  or	
  disposition	
   even	
  if	
  shareholder	
  approval	
  was	
  not	
  obtained.	
   (2)	
  A	
   company	
   that	
   applies	
   to	
   the	
   court	
   for	
   an	
   authorization	
   is	
   to	
   give	
   notice	
   of	
   the	
   application	
   to	
   the	
   secured	
   creditors	
   who	
   are	
   likely	
   to	
   be	
   affected	
  by	
  the	
  proposed	
  sale	
  or	
  disposition.	
   (3)	
  In	
   deciding	
   whether	
   to	
   grant	
   the	
   authorization,	
   the	
   court	
   is	
   to	
   consider,	
  among	
  other	
  things,	
   (a)	
  whether	
  the	
  process	
  leading	
  to	
  the	
  proposed	
  sale	
  or	
  disposition	
  was	
   reasonable	
  in	
  the	
  circumstances;	
   (b)	
  whether	
  the	
  monitor	
  approved	
  the	
  process	
  leading	
  to	
  the	
  proposed	
   sale	
  or	
  disposition;	
   (c)	
  whether	
  the	
  monitor	
  filed	
  with	
  the	
  court	
  a	
  report	
  stating	
  that	
  in	
  their	
   opinion	
  the	
  sale	
  or	
  disposition	
  would	
  be	
  more	
  beneficial	
  to	
  the	
  creditors	
   than	
  a	
  sale	
  or	
  disposition	
  under	
  a	
  bankruptcy;	
   (d)	
  the	
  extent	
  to	
  which	
  the	
  creditors	
  were	
  consulted;	
   (e)	
  the	
   effects	
   of	
   the	
   proposed	
   sale	
   or	
   disposition	
   on	
   the	
   creditors	
   and	
   other	
  interested	
  parties;	
  and	
   (f)	
  whether	
   the	
   consideration	
   to	
   be	
   received	
   for	
   the	
   assets	
   is	
   reasonable	
   and	
  fair,	
  taking	
  into	
  account	
  their	
  market	
  value.	
   (4)	
  If	
   the	
   proposed	
   sale	
   or	
   disposition	
   is	
   to	
   a	
   person	
   who	
   is	
   related	
   to	
   the	
  company,	
  the	
  court	
  may,	
  after	
  considering	
  the	
  factors	
  referred	
  to	
  in	
   subsection	
  (3),	
  grant	
  the	
  authorization	
  only	
  if	
  it	
  is	
  satisfied	
  that	
   (a)	
  good	
   faith	
   efforts	
   were	
   made	
   to	
   sell	
   or	
   otherwise	
   dispose	
   of	
   the	
   assets	
  to	
  persons	
  who	
  are	
  not	
  related	
  to	
  the	
  company;	
  and	
   (b)	
  the	
  consideration	
  to	
  be	
  received	
  is	
  superior	
  to	
  the	
  consideration	
  that	
   would	
   be	
   received	
   under	
   any	
   other	
   offer	
   made	
   in	
   accordance	
   with	
   the	
   process	
  leading	
  to	
  the	
  proposed	
  sale	
  or	
  disposition.	
   (5)	
  For	
   the	
   purpose	
   of	
   subsection	
   (4),	
   a	
   person	
   who	
   is	
   related	
   to	
   the	
   company	
  includes	
   (a)	
  a	
  director	
  or	
  officer	
  of	
  the	
  company;	
   (b)	
  a	
  person	
  who	
  has	
  or	
  has	
  had,	
  directly	
  or	
  indirectly,	
  control	
  in	
  fact	
  of	
   the	
  company;	
  and	
    	
    64	
    (c)	
  a	
  person	
  who	
  is	
  related	
  to	
  a	
  person	
  described	
  in	
  paragraph	
  (a)	
  or	
  (b).	
   (6)	
  The	
   court	
   may	
   authorize	
   a	
   sale	
   or	
   disposition	
   free	
   and	
   clear	
   of	
   any	
   security,	
  charge	
  or	
  other	
  restriction	
  and,	
  if	
  it	
  does,	
  it	
  shall	
  also	
  order	
  that	
   other	
  assets	
  of	
  the	
  company	
  or	
  the	
  proceeds	
  of	
  the	
  sale	
  or	
  disposition	
  be	
   subject	
  to	
  a	
  security,	
  charge	
  or	
  other	
  restriction	
  in	
  favour	
  of	
  the	
  creditor	
   whose	
  security,	
  charge	
  or	
  other	
  restriction	
  is	
  to	
  be	
  affected	
  by	
  the	
  order.	
   (7)	
  The	
   court	
   may	
   grant	
   the	
   authorization	
   only	
   if	
   the	
   court	
   is	
   satisfied	
   that	
  the	
  company	
  can	
  and	
  will	
  make	
  the	
  payments	
  that	
  would	
  have	
  been	
   required	
   under	
   paragraphs	
   6(4)(a)	
   and	
   (5)(a)	
   if	
   the	
   court	
   had	
   sanctioned	
  the	
  compromise	
  or	
  arrangement.230 	
   	
   Justice	
   Mongeon	
   noted	
   that	
   the	
   list	
   of	
   reasons	
   for	
   the	
   court	
   to	
   consider	
   when	
   authorizing	
   the	
   disposition	
   of	
   assets	
   was	
   neither	
   exhaustive	
   nor	
   limitative.	
   	
   He	
   instead	
   found	
   that	
   the	
   “Court	
   has	
   to	
   look	
   at	
   the	
   transaction	
   as	
   a	
   whole	
   and	
   essentially	
   decide	
   whether	
   or	
   not	
   the	
   sale	
   is	
   appropriate,	
   fair	
   and	
   reasonable.”231	
  	
   In	
   support	
   of	
   this	
   statement,	
   Justice	
   Mongeon	
   referred	
   to	
   both	
   Madam	
   Justice	
   Pepall	
   in	
   Canwest 232 	
  and	
   Justice	
   Morawetz	
   in	
   Nortel	
   Networks. 233 	
  	
   Quoting	
   from	
   Madam	
   Justice	
  Pepall:	
   The	
  proposed	
  disposition	
  of	
  assets	
  meets	
  the	
  Section	
  36	
  CCAA	
  criteria	
   and	
   those	
   set	
   forth	
   in	
   the	
   Royal	
   Bank	
   v.	
   Soundair	
   Corp.	
   decision.	
  	
   Indeed,	
   to	
   a	
   large	
   degree,	
   the	
   criteria	
   overlap.	
   	
   The	
   process	
   was	
   reasonable	
   as	
   the	
   Monitor	
   was	
   content	
   with	
   it.	
   	
   Sufficient	
   efforts	
   were	
   made	
  to	
  attract	
  the	
  best	
  possible	
  bid;	
  the	
  SISP	
  was	
  widely	
  publicized;	
   ample	
   time	
   was	
   given	
   to	
   prepare	
   offers;	
   and	
   there	
   was	
   integrity	
   and	
   no	
   unfairness	
   in	
   the	
   process…The	
   effect	
   of	
   the	
   proposed	
   sale	
   on	
   other	
   interested	
  parties	
  is	
  positive.	
  	
  Amongst	
  other	
  things,	
  it	
  provides	
  for	
  a	
   going	
  concern	
  outcome	
  and	
  significant	
  recoveries	
  for	
  both	
  the	
  secured	
   and	
  unsecured	
  creditors.234	
   	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   230 	
  CCAA,	
  supra	
  note	
  6	
  [emphasis	
  from	
  Justice	
  Mongeon’s	
  reasons	
  in	
  White	
  Birch].	
   231 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  49.	
   232 	
  Canwest	
  Publishing	
  Inc.	
  (Re),	
  2010	
  ONSC	
  2870,	
  [2010]	
  OJ	
  No	
  2190	
  [Canwest].	
   233 	
  Nortel	
  Networks	
  Corp.	
  (Re),	
  [2009]	
  OJ	
  No	
  4487,	
  56	
  CBR	
  (5th)	
  224	
  [Nortel	
  Networks].	
   234 	
  Canwest,	
  supra	
  note	
  232	
  at	
  para	
  13	
  [footnote	
  omitted].	
   	
    65	
    In	
   Nortel	
   Networks,	
   Justice	
   Morawetz	
   restated	
   the	
   Royal	
   Bank	
   v.	
   Soundair	
   Corp.	
   criteria	
  as	
  follows:	
    	
    The	
  duties	
  of	
  the	
  Court	
  in	
  reviewing	
  a	
  proposed	
  sale	
  of	
  assets	
  are	
  as	
   follows:	
   	
   1) It	
  should	
  consider	
  whether	
  sufficient	
  effort	
  has	
  been	
  made	
   to	
   obtain	
   the	
   best	
   price	
   and	
   that	
   the	
   debtor	
   has	
   not	
   acted	
   improperly;	
   	
   2) It	
   should	
   consider	
   the	
   interests	
   of	
   all	
   parties;	
   	
   3) It	
  should	
  consider	
  the	
  efficacy	
  and	
  integrity	
  of	
  the	
  process	
   by	
  which	
  offers	
  have	
  been	
  obtained;	
   	
   4) and	
  it	
  should	
  consider	
  whether	
  there	
  has	
  been	
  unfairness	
  in	
   the	
  working	
  out	
  of	
  the	
  process.235	
    Concluding	
   his	
   reasons,	
   Justice	
   Mongeon	
   then	
   granted	
   the	
   Motion	
   to	
   Approve	
   the	
   Sale.	
   	
   6.3	
  White	
  Birch	
  –	
  Quebec	
  Court	
  of	
  Appeal	
  Decision	
   SAI	
  subsequently	
  sought	
  leave	
  to	
  appeal	
  Justice	
  Robert	
  Monegon’s	
  decision	
  granting	
   the	
   Sale	
   Order	
   to	
   BD	
   White	
   Birch.236	
  	
   SAI	
   argued	
   that	
   Justice	
   Mongeon	
   erred	
   in	
   treating	
   the	
   bids	
   the	
   same	
   by	
   looking	
   only	
   at	
   the	
   nominal	
   value	
   offered	
   by	
   each	
   bidder.	
  	
  Instead,	
  SAI	
  claimed	
  that	
  the	
  bids	
  should	
  have	
  been	
  reviewed	
  in	
  accordance	
   to	
   what	
   they	
   offered	
   to	
   each	
   class	
   of	
   creditors,	
   specifically	
   unsecured	
   creditors.	
  	
  	
   Furthermore,	
   the	
   applicants	
   contended	
   that	
   credit	
   bidding	
   had	
   been	
   used	
   unjustly	
   since	
  the	
  assets	
  that	
  BD	
  White	
  Birch’s	
  claim	
  was	
  secured	
  against	
  were	
  worthless.	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   235 	
  Nortel	
  Networks,	
  supra	
  note	
  233	
  at	
  para	
  35.	
   236 	
  White	
  Birch	
  Paper	
  Holding	
  Company	
  (Proposition	
  de),	
  2010	
  QCCA	
  1950,	
  [2010]	
  QJ	
  No	
  11089	
   [White	
  Birch	
  Paper	
  Holding	
  Company].	
   	
    66	
    	
   The	
   applicants	
   also	
   asserted	
   that	
   Justice	
   Mongeon	
   erred	
   in	
   his	
   application	
   of	
   subsection	
  36(3)(e)	
  of	
  the	
  CCAA,	
  overlooking	
  BD	
  White	
  Birch’s	
  positing	
  of	
  their	
  own	
   interests	
   above	
   all	
   others,	
   including	
   other	
   First	
   Lien	
   Lenders	
   for	
   which	
   BD	
   White	
   Birch	
  was	
  a	
  sub-­‐agent.	
  	
  	
   	
   In	
  addressing	
  the	
  applicants’	
  first	
  argument	
  regarding	
  the	
  validity	
  of	
  the	
  credit	
  bid,	
   Justice	
  Dalphond,	
  J.A.	
  recited	
  a	
  near	
  identical	
  rationale	
  as	
  found	
  in	
  Justice	
  Mongeon’s	
   reasons.	
  	
  Justice	
  Dalphond	
  reasoned	
  that	
  the	
  rules	
  of	
  the	
  bidding	
  process	
  had	
  been	
   decided	
   and	
   approved	
   long	
   before	
   SAI	
   had	
   taken	
   issue	
   with	
   credit	
   bidding.	
  	
   Moreover,	
   to	
   assert	
   that	
   the	
   fixed	
   assets	
   were	
   worthless	
   contradicted	
   SAI’s	
   prior	
   valuation	
   of	
   the	
   assets	
   whereby	
   they	
   had	
   attributed	
   US$35.3	
   million	
   of	
   the	
   bid	
   to	
   them.	
   	
   BD	
   White	
   Birch	
   attributed	
   US$78	
   million	
   to	
   the	
   fixed	
   assets,	
   which	
   was	
   the	
   value	
  of	
  the	
  credit	
  bid,	
  and	
  an	
  additional	
  US$4.5	
  million	
  in	
  cash.	
  	
  Holding	
  that	
  there	
   was	
   no	
   error	
   by	
   Justice	
   Mongeon,	
   and	
   acknowledging	
   that	
   a	
   new	
   bidding	
   process	
   would	
   unduly	
   hinder	
   the	
   reorganization	
   process,	
   Justice	
   Dalphond	
   dismissed	
   the	
   motion	
  for	
  leave	
  to	
  appeal.	
   	
   6.4	
  Credit	
  Bidding	
  After	
  White	
  Birch	
  and	
  Beyond	
  the	
  CCAA	
   Following	
   the	
   decision	
   in	
   White	
  Birch,	
   the	
   courts	
   have	
   been	
   more	
   concerned	
   with	
   the	
   fairness	
   and	
   transparency	
   of	
   the	
   sales	
   process	
   involving	
   stalking	
   horse	
   credit	
   bids	
  rather	
  than	
  delving	
  into	
  the	
  validity	
  of	
  credit	
  bidding	
  based	
  on	
  its	
  own	
  merits.	
  	
    	
    67	
    The	
   courts	
   in	
   CCM	
   Master237	
  and	
   PCAS	
   Patient	
   Care,238	
  which	
   dealt	
   with	
   stalking	
   horse	
   credit	
   bids,	
   looked	
   to	
   the	
   criteria	
   laid	
   out	
   in	
   Royal	
  Bank	
  v.	
  Soundair	
  Corp.239	
   when	
   considering	
   whether	
   to	
   approve	
   a	
   sale	
   of	
   the	
   debtors’	
   assets.	
   	
   This	
   criteria,	
   which	
  was	
  also	
  followed	
  by	
  the	
  court	
  in	
  White	
  Birch,	
  entails	
  the	
  court	
  reviewing:	
  	
    	
    (i) the	
  fairness,	
  transparency	
  and	
  integrity	
  of	
  the	
  proposed	
  process;	
   (ii) the	
   commercial	
   efficacy	
   of	
   the	
   proposed	
   process	
   in	
   light	
   of	
   the	
   specific	
  circumstances	
  facing	
  the	
  receiver;	
  and,	
   (iii) whether	
   the	
   sales	
   process	
   will	
   optimize	
   the	
   chances,	
   in	
   the	
   particular	
   circumstances,	
   of	
   securing	
   the	
   best	
   possible	
   price	
   for	
   the	
   assets	
  up	
  for	
  sale.240	
   	
    Yet,	
  these	
  criteria	
  apply	
  to	
  all	
  proposed	
  sales	
  by	
  a	
  court-­‐appointed	
  receiver	
  and	
  not	
   just	
   to	
   those	
   sales	
   involving	
   credit	
   bidding.	
   	
   When	
   credit	
   bidding	
   is	
   involved,	
   the	
   courts	
  in	
  CCM	
  Master	
  and	
  PCAS	
  Patient	
  Care	
  both	
  quoted	
  Pamela	
  Huff’s	
  summary	
  of	
   additional	
   considerations	
   to	
   be	
   regarded	
   when	
   approving	
   a	
   sale,	
   as	
   derived	
   from	
   Canwest:	
   To	
   be	
   effective	
   for	
   such	
   stakeholders,	
   the	
   credit	
   bid	
   had	
   to	
   be	
   put	
   forward	
   in	
   a	
   process	
   that	
   would	
   allow	
   a	
   sufficient	
   opportunity	
   for	
   interested	
   parties	
   to	
   come	
   forward	
   with	
   a	
   superior	
   offer,	
   recognizing	
   that	
  a	
  timetable	
  for	
  the	
  sale	
  of	
  a	
  business	
  in	
  distress	
  is	
  a	
  fast	
  track	
  ride	
   that	
   requires	
   interested	
   parties	
   to	
   move	
   quickly	
   or	
   miss	
   the	
   opportunity.	
   The	
   court	
   has	
   to	
   balance	
   the	
   need	
   to	
   move	
   quickly,	
   to	
   address	
   the	
   real	
   or	
   perceived	
   deterioration	
   of	
   value	
   of	
   the	
   business	
   during	
   a	
   sale	
   process	
   or	
   the	
   limited	
   availability	
   of	
   restructuring	
   financing,	
  with	
  a	
  realistic	
  timetable	
  that	
  encourages	
  and	
  does	
  not	
  chill	
   the	
  auction	
  process.241	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   237 	
  CCM	
  Master,	
  supra	
  note	
  28.	
   238 	
  PCAS	
  Patient	
  Care	
  Automation	
  Services	
  Inc.,	
  Re,	
  2012	
  ONSC	
  2840,	
  94	
  CBR	
  (5th)	
  69	
  [PCAS	
  Patient	
    Care].	
   239 	
  Royal	
  Bank	
  v	
  Soundair	
  Corp.,	
  supra	
  note	
  197.	
   240 	
  CCM	
  Master,	
  supra	
  note	
  28	
  at	
  para	
  6.	
  	
   241 	
  Pamela	
  Huff	
  et	
  al,	
  “Credit	
  Bidding	
  –	
  Recent	
  Canadian	
  and	
  U.S.	
  Themes”	
  in	
  Janis	
  P.	
  Sarra,	
  ed,	
  Annual	
   Review	
  of	
  Insolvency	
  Law	
  2010	
  (Toronto:	
  Thomson	
  Carswell,	
  2011)	
  1	
  at	
  16.	
    	
    68	
    Despite	
   touching	
   on	
   issues	
   such	
   as	
   chilling,	
   the	
   courts	
   failed	
   to	
   undertake	
   any	
   further	
  analyses	
  of	
  credit	
  bidding,	
  instead	
  relying	
  on	
  generalized	
  criteria	
  from	
  Royal	
   Bank	
  v.	
  Soundair	
  Corp.	
  and	
  Canwest’s	
  pre-­‐packaged	
  credit	
  bidding	
  factors	
  to	
  approve	
   the	
   use	
   of	
   stalking	
   horse	
   credit	
   bids	
   as	
   it	
   applied	
   to	
   their	
   respective	
   cases.	
  	
   Subsequent	
   cases	
   that	
   have	
   dealt	
   with	
   the	
   traditional	
   notion	
   of	
   credit	
   bidding,	
   without	
   a	
   stalking	
   horse	
   element,	
   have	
   merely	
   cited	
   White	
   Birch	
   in	
   approving	
   the	
   use	
  of	
  credit	
  bidding	
  under	
  the	
  CCAA.242	
  	
   	
   While	
  credit	
  bidding	
  has	
  been	
  employed	
  under	
  CCAA	
  proceedings	
  as	
  seen	
  in	
  White	
   Birch	
  and	
   under	
   the	
   BIA	
   in	
   Re	
  Parlay	
  Entertainment	
  Inc.,243	
  it	
   has	
   not	
   been	
   limited	
   to	
   a	
   strict	
   insolvency	
   context	
   in	
   Canada.	
   	
   Both	
   CCM	
   Master	
   and	
   Canrock	
   are	
   cases	
   involving	
   receiverships.	
   	
   In	
   Canrock,	
   the	
   secured	
   creditor	
   obtained	
   a	
   court	
   order	
   appointing	
   a	
   receiver.	
   	
   After	
   reviewing	
   several	
   offers,	
   the	
   receiver	
   sought	
   a	
   court	
   order	
   approving	
   a	
   sale	
   of	
   the	
   debtor’s	
   assets,	
   with	
   the	
   purchase	
   agreement	
   containing	
  a	
  credit	
  bid	
  component.	
  	
  While	
  the	
  court	
  initially	
  took	
  issue	
  with	
  a	
  lack	
  of	
   valuation	
  of	
  certain	
  assets,244	
  the	
  subsequent	
  appraisal	
  of	
  these	
  assets	
  was	
  a	
  factor	
   in	
   the	
   court	
   granting	
   approval	
   of	
   the	
   sale.245	
  	
   Similar	
   to	
   the	
   court	
   in	
   CCM	
  Master,	
   the	
   court	
   in	
   Canrock	
   approved	
   a	
   sales	
   process	
   using	
   the	
   Royal	
   Bank	
   v.	
   Soundair	
   Corp.	
   criteria	
   without	
   further	
   reviewing	
   the	
   aspects	
   of	
   credit	
   bidding.	
   	
   Hence,	
   White	
   Birch’s	
  examination	
  of	
  the	
  validity	
  of	
  credit	
  bidding	
  continues	
  to	
  be	
  the	
  predominant	
   exposition	
  on	
  this	
  subject	
  in	
  Canada	
  to	
  date.	
  	
  	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   242 	
  See	
  Aveos	
  Fleet	
  Performance	
  Inc.,	
  supra	
  note	
  195.	
   243 	
  Parlay	
  Entertainment	
  Inc.,	
  Re,	
  2011	
  ONSC	
  3492,	
  81	
  CBR	
  (5th)	
  58.	
   244 	
  Canrock	
  Ventures	
  LLC	
  v	
  Ambercore	
  Software	
  Inc.,	
  2011	
  ONSC	
  1138,	
  [2011]	
  OJ	
  No	
  729.	
   245 	
  Canrock,	
  supra	
  note	
  28.	
  	
   	
    69	
    CHAPTER	
  7:	
  TIME	
  TO	
  ADAPT?	
  	
  	
  	
   7.1	
  Introduction	
   Humans,	
   as	
   a	
   species,	
   are	
   in	
   a	
   constant	
   state	
   of	
   change.	
   	
   We	
   do	
   not	
   sit	
   idly	
   by	
   watching	
  the	
  world	
  turn,	
  but	
  instead	
  invent,	
  discover	
  and	
  modify	
  the	
  society	
  we	
  live	
   in.	
   	
   Recognizing	
   that	
   we	
   do	
   not	
   live	
   in	
   a	
   static	
   environment,	
   Canada’s	
   legal	
   system	
   must	
   be	
   able	
   to	
   adapt	
   or	
   risk	
   becoming	
   obsolete.	
   	
   Amending	
   and	
   revising	
   legislation	
   is	
   an	
   essential	
   requirement	
   needed	
   for	
   the	
   evolution	
   of	
   law.246	
  	
   Chapter	
   3	
   of	
   this	
   thesis	
  has	
  already	
  detailed	
  the	
  benefit	
  credit	
  bidding	
  has	
  to	
  offer	
  secured	
  creditors	
   in	
   that	
   it	
   prevents	
   undervaluation	
   of	
   the	
   collateral.	
   	
   The	
   question	
   that	
   remains	
   is	
   whether	
  or	
  not	
  credit	
  bidding	
  has	
  a	
  place	
  in	
  Canadian	
  legislation.	
  	
  To	
  put	
  it	
  another	
   way,	
  should	
  secured	
  creditors	
  be	
  entitled	
  to	
  credit	
  bid	
  through	
  detailed	
  legislation	
   or	
  should	
  it	
  remain	
  subject	
  to	
  judicial	
  discretion?	
  	
   	
   Comprehensive	
  legislation	
  is,	
  by	
  definition,	
  meant	
  to	
  provide	
  a	
  conclusive	
  and	
  sound	
   application	
  of	
  the	
  law.	
  	
  The	
  definitive	
  structure	
  of	
  highly	
  detailed	
  laws,	
  such	
  as	
  the	
   US	
  Bankruptcy	
  Code,	
  provides	
  creditors	
  and	
  debtors	
  with	
  some	
  security	
  as	
  to	
  how	
  a	
   bankruptcy	
  proceeding	
  would	
  unfold	
  in	
  the	
  event	
  that	
  a	
  debtor	
  becomes	
  insolvent.	
  	
   In	
   essence,	
   it	
   creates	
   a	
   sturdy	
   “box.”	
   	
   At	
   first	
   glance,	
   the	
   US’	
   rigid,	
   structured	
   bankruptcy	
   regime	
   would	
   appear	
   to	
   offer	
   parties	
   more	
   certainty	
   in	
   approaching	
   bankruptcy	
   applications.	
   	
   However,	
   this	
   sound	
   structure	
   can	
   be	
   deceiving	
   and	
   is	
   not	
   without	
  its	
  own	
  pitfalls.	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   246 	
  Eisenberg,	
  supra	
  note	
  5	
  at	
  5.	
   	
    70	
    The	
   rigid	
   structure	
   and	
   precise	
   wording	
   found	
   in	
   the	
   US	
   legislation	
   requires	
   the	
   courts	
  to	
  apply	
  the	
  letter	
  of	
  the	
  law	
  as	
  stated,	
  no	
  more	
  no	
  less.	
  	
  Within	
  this	
  structure,	
   a	
   witty	
   party	
   may	
   find	
   an	
   alternative	
   means	
   of	
   restructuring	
   not	
   previously	
   considered.	
  	
  The	
  creative	
  thinking	
  and	
  clever	
  legal	
  maneuvering	
  which	
  results	
  from	
   “thinking	
   outside	
   the	
   box”	
   can	
   leave	
   courts	
   trapped.	
   	
   The	
   string	
   of	
   recent	
   credit	
   bidding	
   decisions	
   in	
   the	
   US	
   is	
   an	
   example	
   of	
   how	
   structured	
   legislation	
   intended	
   for	
   clarity	
  unintentionally	
  became	
  the	
  source	
  of	
  uncertainty.	
  	
  	
   	
   The	
   Canadian	
   insolvency	
   arena	
   is	
   faced	
   with	
   two	
   juxtaposed	
   pieces	
   of	
   legislation;	
   the	
   verbose	
   BIA	
   and	
   the	
   succinct	
   but	
   brief	
   CCAA.	
   	
   Recent	
   amendments	
   have	
   attempted	
   to	
   harmonize	
   these	
   two	
   statutes,	
   including	
   the	
   addition	
   of	
   similar	
   provisions	
  in	
  respect	
  to	
  sale	
  of	
  assets.247	
  	
   Both	
  the	
  BIA	
  and	
  CCAA	
  have	
  provisions	
  in	
   place	
  that	
  enable	
  a	
  debtor	
  to	
  attempt	
  a	
  reorganization,	
  a	
  key	
  difference	
  between	
  the	
   two	
   acts	
   being	
   the	
   degree	
   of	
   flexibility	
   and	
   judicial	
   discretion.248	
  	
   This	
   thesis	
   focuses	
   on	
   the	
   more	
   flexible	
   reorganization	
   regime	
   under	
   the	
   CCAA	
   and	
   the	
   bankruptcy	
   provisions	
  as	
  provided	
  in	
  the	
  BIA.	
  	
  	
   	
   Under	
   the	
   CCAA,	
   plans	
   of	
   reorganization	
   are	
   not	
   required	
   to	
   fit	
   into	
   any	
   pre-­‐ determined	
  box	
  and	
  tied	
  with	
  a	
  bow.	
  	
  Instead,	
  there	
  is	
  no	
  proverbial	
  box	
  at	
  all.	
  	
   The	
   CCAA	
   enables	
   the	
   courts	
   to	
   maintain	
   an	
   open	
   mind,	
   looking	
   more	
   towards	
   the	
   fairness	
  and	
  reasonableness	
  of	
  any	
  proposed	
  plan	
  rather	
  than	
  whether	
  it	
  fits	
  into	
  a	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   247 	
  An	
  Act	
  to	
  amend	
  the	
  Bankruptcy	
  and	
  Insolvency	
  Act,	
  the	
  Companies’	
  Creditors	
  Arrangement	
  Act,	
  the	
   Wage	
  Earner	
  Protection	
  Program	
  Act	
  and	
  chapter	
  47	
  of	
  the	
  Statutes	
  of	
  Canada,	
  2005,	
  SC	
  2007,	
  c	
  36,	
  ss	
   27,	
  78	
  [An	
  Act	
  to	
  amend].	
   248 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  para	
  14.	
    	
    71	
    preset	
   mold.249	
  	
   One	
   might	
   describe	
   it	
   as	
   being	
   more	
   fluid	
   in	
   nature,	
   allowing	
   the	
   courts	
  to	
  adapt	
  quickly	
  with	
  every	
  new	
  practice.	
  	
  While	
  it	
  may	
  seem	
  that	
  such	
  a	
  fluid	
   regime	
  would	
  lend	
  itself	
  to	
  being	
  unpredictable,	
  the	
  vague	
  nature	
  of	
  the	
  legislation	
   permitting	
   judges	
   to	
   exercise	
   some	
   degree	
   of	
   subjectivity,	
   it	
   is	
   also	
   more	
   reliable.	
  	
   Broad	
   tests	
   and	
   standards,	
   such	
   as	
   the	
   concept	
   of	
   “fair	
   and	
   reasonable,”250	
  ensure	
   that	
  parties	
  cannot	
  cleverly	
  devise	
  novel	
  deals	
  that	
  fit	
  within	
  the	
  letter	
  of	
  the	
  law	
  but	
   clearly	
   betray	
   what	
   is	
   intended	
   by	
   Parliament.	
   	
   The	
   CCAA	
   provides	
   a	
   certain	
   amount	
   of	
   leeway	
   in	
   enabling	
   a	
   judge	
   to	
   interpret	
   what	
   is	
   indeed	
   “fair	
   and	
   reasonable,”	
   which	
   thereby	
   creates	
   the	
   certainty	
   that	
   is	
   desired.	
   The	
   courts’	
   ability	
   to	
   exercise	
   this	
   judicial	
   discretion	
   is	
   based	
   on	
   both	
   its	
   statutory	
   authority,	
   as	
   provided	
   in	
   the	
   CCAA,251	
  and	
   its	
   inherent	
   jurisdiction,	
   as	
   “derived	
   from	
   its	
   nature	
   as	
   a	
   court	
   of	
   law.”252	
  	
  It	
  is	
  the	
  exercising	
  of	
  judicial	
  discretion	
  that	
  has	
  enabled	
  the	
  CCAA	
  to	
  evolve	
   to	
   meet	
   modern	
   business	
   needs	
   and	
   to	
   ultimately	
   include	
   credit	
   bidding	
   in	
   CCAA	
   proceedings.253	
  	
   This	
   flexibility	
   is	
   intrinsic	
   to	
   the	
   proper	
   operation	
   of	
   the	
   statute,	
   for	
   without	
  it,	
  the	
  CCAA	
  would	
  not	
  be	
  able	
  to	
  respond	
  to	
  reorganizations	
  of	
  increasing	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   249 	
  See	
  Janis	
  Sarra,	
  “Debtor	
  in	
  Possession	
  Financing:	
  The	
  Jurisdiction	
  of	
  Canadian	
  Courts	
  to	
  Grant	
    Super-­‐Priority	
  Financing	
  in	
  CCAA	
  Applications”	
  (2000)	
  23	
  Dalhousie	
  LJ	
  337	
  at	
  348	
  [Sarra,	
  “Debtor	
  in	
   Possession”].	
   250 	
  Canadian	
  Red	
  Cross	
  Society	
  (Re),	
  [1998]	
  OJ	
  No	
  3306,	
  5	
  CBR	
  (4th)	
  299	
  (whether	
  the	
  purchase	
  price	
   of	
  assets	
  was	
  fair	
  and	
  reasonable	
  under	
  the	
  CCAA	
  plan);	
  	
  AbitibiBowater	
  inc.	
  (Arrangement	
  relatif	
  à),	
   2010	
  QCCS	
  4450,	
  [2010]	
  QJ	
  No	
  9504	
  (court	
  discusses	
  importance	
  of	
  a	
  CCAA	
  plan	
  being	
  fair	
  and	
   reasonable). 251 	
  CCAA,	
  supra	
  note	
  6,	
  s.	
  11	
  (“[d]espite	
  anything	
  in	
  the	
  Bankruptcy	
  and	
  Insolvency	
  Act	
  or	
  the	
   Winding-­‐up	
  and	
  Restructuring	
  Act,	
  if	
  an	
  application	
  is	
  made	
  under	
  this	
  Act	
  in	
  respect	
  of	
  a	
  debtor	
   company,	
  the	
  court,	
  on	
  the	
  application	
  of	
  any	
  person	
  interested	
  in	
  the	
  matter,	
  may,	
  subject	
  to	
  the	
   restrictions	
  set	
  out	
  in	
  this	
  Act,	
  on	
  notice	
  to	
  any	
  other	
  person	
  or	
  without	
  notice	
  as	
  it	
  may	
  see	
  fit,	
  make	
   any	
  order	
  that	
  it	
  considers	
  appropriate	
  in	
  the	
  circumstances”).	
   252 	
  Madam	
  Justice	
  Georgina	
  R.	
  Jackson	
  &	
  Dr.	
  Janis	
  Sarra,	
  “Selecting	
  the	
  Judicial	
  Tool	
  to	
  get	
  the	
  Job	
   Done:	
  An	
  Examination	
  of	
  Statutory	
  Interpretation,	
  Discretionary	
  Power	
  and	
  Inherent	
  Jurisdiction	
  in	
   Insolvency	
  Matters”	
  in	
  Janis	
  P.	
  Sarra,	
  ed,	
  Annual	
  Review	
  of	
  Insolvency	
  Law	
  2007	
  (Toronto:	
  Thomson	
   Carswell,	
  2008)	
  41	
  at	
  76.	
   253 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  para	
  58;	
  See	
  also	
  Jackson,	
  supra	
  note	
  252	
  at	
  71-­‐73.	
    	
    72	
    complexity.254	
  	
   The	
   BIA,	
   comparatively,	
   is	
   less	
   flexible.	
   	
   As	
   a	
   more	
   codified	
   statute,	
   the	
   courts	
   may	
   still	
   exercise	
   judicial	
   discretion	
   as	
   derived	
   from	
   both	
   statutory	
   interpretation	
  and	
  inherent	
  jurisdiction,255	
  but	
  to	
  a	
  lesser	
  extent.256	
  	
  	
   	
   Given	
   the	
   ability	
   to	
   use	
   both	
   statutory	
   interpretation	
   and	
   inherent	
   jurisdiction	
   to	
   exercise	
  broad	
  judicial	
  discretion	
  in	
  filling-­‐in	
  any	
  perceived	
  gaps	
  in	
  legislation,	
  one	
   could	
  argue	
  that	
  the	
  Canadian	
  insolvency	
  regime	
  is	
  the	
  ideal	
  legal	
  system,	
  in	
  that	
  it	
   permits	
   courts	
   to	
   adapt	
   quickly	
   to	
   meet	
   societal	
   needs.	
   	
   Yet,	
   in	
   its	
   current	
   state	
   in	
   Canada,	
   credit	
   bidding	
   is	
   hardly	
   a	
   right	
   that	
   has	
   been	
   guaranteed	
   in	
   common	
   law.	
  	
   The	
   courts	
   in	
   Canwest	
  and	
   White	
  Birch	
   have	
   found	
   credit	
   bidding	
   to	
   be	
   valid	
   as	
   an	
   approved	
  bidding	
  procedure,	
  but	
  they	
  did	
  not	
  go	
  so	
  far	
  as	
  to	
  state	
  that	
  it	
  was	
  a	
  right.	
  	
   The	
  court	
  in	
  White	
   Birch	
  relied	
  heavily	
  on	
  the	
  fact	
  that	
  the	
  bidding	
  procedures	
  had	
   made	
   mention	
   of	
   the	
   lenders’	
   option	
   to	
   credit	
   bid,	
   in	
   addition	
   to	
   the	
   security	
   agreements,	
   as	
   support	
   in	
   their	
   decision	
   to	
   approve	
   the	
   lenders	
   as	
   the	
   winning	
   bidder.	
  	
  Hence,	
  an	
  argument	
  could	
  be	
  made	
  that	
  the	
  outcome	
  in	
  White	
   Birch	
   would	
   have	
   been	
   notably	
   different	
   if	
   credit	
   bidding	
   had	
   not	
   been	
   included	
   in	
   the	
   court-­‐ approved	
  bidding	
  procedures	
  or	
  the	
  security	
  documents.	
  	
   	
   Subsequent	
   cases	
   have	
   merely	
   noted	
   that	
   credit	
   bidding	
   has	
   been	
   “recognized	
   by	
   Canadian	
  courts	
  as	
  a	
  reasonable	
  and	
  useful	
  element	
  of	
  a	
  sales	
  process.”257	
  	
   As	
  seen	
   similarly	
  in	
  White	
  Birch,	
  these	
  cases	
  deal	
  with	
  credit	
  bidding	
  in	
  circumstances	
  that	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   254 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  paras	
  14,	
  21.	
   255 	
  BIA,	
  supra	
  note	
  170,	
  s	
  183(1).	
   256 	
  Jackson,	
  supra	
  note	
  252	
  at	
  78-­‐82.	
   257 	
  CCM	
  Master,	
  supra	
  note	
  28	
  at	
  7;	
  See	
  also	
  PCAS	
  Patient	
  Care,	
  supra	
  note	
  238	
  at	
  17.	
  	
   	
    73	
    required	
   court-­‐ordered	
   approval	
   of	
   the	
   sale	
   and	
   bidding	
   procedures	
   prior	
   to	
   the	
   submission	
  of	
  a	
  credit	
  bid.	
  	
  While	
  Brainhunter	
  did	
  contemplate	
  the	
  use	
  of	
  a	
  credit	
  bid	
   that	
   was	
   not	
   pre-­‐approved	
   by	
   the	
   court,	
   ultimately	
   the	
   credit	
   bid	
   was	
   not	
   employed	
   as	
   it	
   was	
   merely	
   an	
   additional	
   resource	
   to	
   outbid	
   other	
   interested	
   parties.	
   	
   Hence,	
   most	
  insolvency	
  cases	
  involving	
  credit	
  bidding	
  have	
  validated	
  its	
  use	
  in	
  the	
  context	
   of	
  court-­‐approved	
  stalking	
  horse	
  credit	
  bids.	
  	
  The	
  courts	
  have	
  not	
  yet	
  weighed	
  in	
  on	
   whether	
  secured	
  lenders	
  are	
  entitled	
  to	
  credit	
  bid	
  irrespective	
  of	
  the	
  pre-­‐approved	
   sales	
  process.	
  	
  That	
  is	
  to	
  say,	
  the	
  question	
  is	
  open	
  for	
  debate	
  as	
  to	
  whether	
  a	
  secured	
   lender	
   has	
   the	
   right	
   to	
   credit	
   bid	
   its	
   debt	
   at	
   an	
   asset	
   sale	
   where	
   the	
   court	
   has	
   not	
   approved	
   its	
   use	
   in	
   the	
   bidding	
   procedures.	
   	
   Without	
   specific	
   legislation	
   to	
   state	
   otherwise,	
   secured	
   creditors	
   have	
   no	
   guarantee	
   that	
   it	
   may	
   use	
   credit	
   bidding	
   without	
   explicit	
   approval	
   by	
   the	
   court.	
   	
   Brainhunter	
   seems	
   to	
   stand	
   for	
   the	
   proposition	
  that	
  credit	
  bidding	
  is	
  allowable.	
  	
  The	
  emphasis	
  the	
  court	
  in	
  White	
  Birch	
   placed	
  on	
  both	
  the	
  security	
  documents	
  and	
  the	
  court-­‐approved	
  bidding	
  procedures	
   in	
   supporting	
   BD	
   White	
   Birch’s	
   credit	
   bid,	
   and	
   other	
   case	
   law	
   having	
   approved	
   credit	
   bidding	
   via	
   “stalking	
   horse	
   credit	
   bids”	
   prior	
   to	
   the	
   actual	
   sales	
   process	
   commencing,258	
  also	
   point	
   to	
   the	
   conclusion	
   that	
   credit	
   bidding	
   is	
   allowable,	
   but	
   certainly	
   not	
   guaranteed.	
   	
   While	
   the	
   courts	
   have	
   used	
   their	
   broad	
   statutory	
   authority	
   to	
   import	
   credit	
   bidding	
   into	
   insolvency	
   proceedings,	
   credit	
   bidding	
   has	
   no	
   statutory	
   basis	
   in	
   Canada	
   and	
   is,	
   thus,	
   subject	
   to	
   the	
   judicial	
   discretion	
   of	
   the	
   courts.	
   	
   Be	
   this	
   as	
   it	
   may,	
   it	
   is	
   legislation	
   that	
   has	
   created	
   defined	
   hierarchies	
   of	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   258 	
  See	
  CCM	
  Master,	
  supra	
  note	
  28;	
  	
  PCAS	
  Patient	
  Care,	
  supra	
  note	
  238.	
   	
    74	
    secured	
   creditors	
   and	
   an	
   equitable	
   method	
   of	
   distributing	
   a	
   bankrupt’s	
   estate.259	
  	
   Furthermore,	
   it	
   is	
   legislation	
   that	
   sets	
   out	
   rights	
   and	
   remedies	
   for	
   secured	
   creditors. 260 	
  	
   Hence,	
   arguably,	
   it	
   is	
   legislation	
   that	
   should	
   be	
   amended	
   when	
   considering	
  the	
  addition	
  of	
  credit	
  bidding	
  as	
  a	
  secured	
  creditor’s	
  right.	
  	
  	
  	
   	
   7.2	
  Embedding	
  Credit	
  Bidding	
  in	
  Canadian	
  Insolvency	
  Legislation	
   Credit	
   bidding,	
   as	
   discussed	
   in	
   Chapter	
   3,	
   was	
   added	
   to	
   the	
   US	
   Bankruptcy	
   Code	
   largely	
   in	
   response	
   to	
   the	
   In	
  re	
  Pine	
  Gate	
  case,	
   whereby	
   the	
   debtor	
   forced	
   secured	
   creditors	
   to	
   take	
   a	
   payout	
   on	
   the	
   collateral	
   based	
   on	
   an	
   appraisal	
   rather	
   than	
   allowing	
   the	
   creditors	
   to	
   take	
   ownership	
   of	
   the	
   collateral. 261 	
  	
   The	
   legislature	
   subsequently	
   amended	
   the	
   legislation	
   to	
   include	
   credit	
   bidding	
   in	
   regards	
   to	
   cramdown	
  plans	
  that	
  contemplated	
  the	
  sale	
  of	
  the	
  secured	
  creditors’	
  collateral	
  free	
   and	
   clear	
   of	
   liens262	
  and	
   in	
   the	
   bankruptcy	
   provision	
   that	
   involves	
   a	
   liquidation	
   of	
   the	
   debtor’s	
   estate. 263 	
  	
   These	
   provisions	
   are	
   aimed	
   at	
   avoiding	
   the	
   sale	
   of	
   the	
   collateral	
   at	
   an	
   undervalued	
   rate	
   due	
   to	
   a	
   depressed	
   market	
   or	
   other	
   external	
   factors	
   to	
   the	
   detriment	
   of	
   the	
   secured	
   creditor.	
   Although	
   cramdown	
   plans	
   are	
   foreign	
   to	
   Canadian	
   insolvency	
   proceedings,	
   liquidation	
   of	
   the	
   debtor’s	
   estate	
   can	
   take	
  place	
  under	
  both	
  the	
  CCAA264	
  and	
  BIA.265	
  	
  Accordingly,	
  §	
  363(k),	
  which	
  pertains	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   259 	
  Frank	
  Bennett,	
  Bennett	
  on	
  Bankruptcy,	
  10th	
  ed	
  (Toronto:	
  CCH	
  Canadian	
  Limited,	
  2008)	
  at	
  32.	
   260 	
  PPSA,	
  supra	
  note	
  15;	
  BIA,	
  supra	
  note	
  170;	
  CCAA,	
  supra	
  note	
  6.	
  	
   261 	
  In	
  re	
  Pine	
  Gate,	
  supra	
  note	
  43.	
   262 	
  11	
  USC	
  at	
  §	
  1129(b)(2)(A)(ii).	
   263 	
  11	
  USC	
  §	
  363(k)	
  (2012).	
   264 	
  CCAA,	
  supra	
  note	
  6,	
  s	
  36.	
   265 	
  BIA,	
  supra	
  note	
  170,	
  s	
  65.13.	
   	
    75	
    to	
   credit	
   bidding	
   under	
   liquidation	
   of	
   a	
   debtor’s	
   estate,	
   could	
   be	
   reviewed	
   in	
   light	
   of	
   the	
  liquidation	
  provisions	
  in	
  Canadian	
  insolvency	
  proceedings.	
  	
  	
   	
   Despite	
  the	
  fact	
  that	
  credit	
  bidding	
  serves	
  to	
  further	
  legislative	
  goals	
  in	
  the	
  US	
  that	
   are	
   not	
   necessarily	
   applicable	
   to	
   Canadian	
   legislative	
   goals,	
   adding	
   credit	
   bidding	
   to	
   the	
  Canadian	
  insolvency	
  regime	
  brings	
  the	
  bankruptcy	
  schemes	
  of	
  both	
  the	
  US	
  and	
   Canada	
   into	
   closer	
   harmony.	
   	
   By	
   minimizing	
   the	
   differences	
   between	
   these	
   two	
   regimes,	
   harmonization	
   smooths	
   a	
   path	
   for	
   future	
   cross-­‐boarder	
   insolvency	
   proceedings.	
  	
  Moreover,	
  it	
  appears	
  as	
  if	
  harmonization	
  of	
  the	
  two	
  regimes	
  is	
  already	
   slowly	
   taking	
   place.	
   	
   For	
   example,	
   under	
   a	
   Chapter	
   11	
   plan	
   of	
   reorganization,	
   the	
   absolute	
   priority	
   rule266	
  dictates	
   that	
   “no	
   holders	
   of	
   junior	
   claims	
   or	
   interests	
   can	
   receive	
   any	
   value	
   in	
   the	
   plan	
   unless	
   senior	
   classes	
   are	
   being	
   paid	
   in	
   full.” 267	
  	
   Although	
   Canada	
   is	
   without	
   an	
   absolute	
   priority	
   rule,	
   recent	
   case	
   law 268 	
  and	
   commentary 269 	
  suggests	
   that	
   the	
   Canadian	
   insolvency	
   scheme	
   is	
   aligning	
   more	
   closely	
   with	
   that	
   of	
   the	
   US,	
   including	
   the	
   subordination	
   of	
   equity	
   claims. 270	
  	
   Furthermore,	
   recent	
   amendments271	
  to	
   the	
   BIA	
   and	
   CCAA	
   have	
   resulted	
   in	
   similar	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   266 	
  11	
  USC	
  §	
  1129(b)(2)(2012).	
   267 	
  Daniel	
  Keating,	
  “RadLAX	
  Revisited:	
  A	
  Routine	
  Case	
  of	
  Statutory	
  Interpretation	
  or	
  a	
  Sub	
  Rose	
   Preservation	
  of	
  Bankruptcy	
  Law’s	
  Great	
  Compromise?”	
  (2012)	
  20	
  Am	
  Bankr	
  Inst	
  L	
  Rev	
  465	
  at	
  499.	
  	
   268 	
  See	
  Canadian	
  Airlines	
  Corp.,	
  Re,	
  2000	
  ABQB	
  442,	
  [2000]	
  AWLD	
  654	
  (“[w]here	
  a	
  company	
  is	
   insolvent,	
  only	
  the	
  creditors	
  maintain	
  a	
  meaningful	
  stake	
  in	
  its	
  assets”	
  at	
  para	
  143);	
  Laidlaw	
  Inc.,	
  Re,	
   [2002]	
  OJ	
  No	
  947,	
  34	
  CBR	
  (4th)	
  72	
  (“the	
  shareholders	
  are	
  very	
  significantly	
  underwater…it	
  is	
   realistic	
  to	
  note	
  that	
  the	
  creditors	
  will	
  take	
  a	
  very	
  severe	
  “haircut”	
  so	
  that	
  they	
  will	
  not	
  come	
  close	
  to	
   being	
  paid	
  out	
  in	
  full…under	
  all	
  foreseeable	
  circumstances,	
  it	
  appears	
  that	
  the	
  shareholders	
  have	
  no	
   economic	
  interest	
  to	
  protect”	
  at	
  para	
  2).	
  	
   269 	
  Shauna	
  Towriss,	
  “Through	
  the	
  Lens	
  of	
  Insolvency:	
  Shareholder	
  Equity	
  in	
  CCAA	
  Restructurings”	
  in	
   Janis	
  P.	
  Sarra,	
  ed	
  Annual	
  Review	
  of	
  Insolvency	
  Law	
  2005	
  (Toronto:	
  Thomson	
  Carswell,	
  2006)	
  527	
  at	
   533,	
  536-­‐539.	
   270 	
  Towriss,	
  ibid.	
   271 	
  An	
  Act	
  to	
  amend,	
  supra	
  note	
  247,	
  ss	
  49,	
  71.	
    	
    76	
    equity	
   subordination	
   clauses.272	
  	
   	
   While	
   discussing	
   the	
   merits	
   of	
   the	
   US	
   absolute	
   priority	
  rule	
  and	
  cramdown	
  provisions	
  in	
  a	
  Canadian	
  context	
  are	
  beyond	
  the	
  scope	
   of	
   this	
   thesis,	
   it	
   bears	
   mentioning	
   that	
   if	
   Canada	
   should	
   choose	
   to	
   adopt	
   these	
   principles	
  in	
  the	
  future	
  in	
  an	
  effort	
  to	
  further	
  harmonize	
  the	
  two	
  insolvency	
  regimes,	
   the	
   legislation	
   of	
   credit	
   bidding	
   in	
   Canada	
   is	
   a	
   logical	
   initiative.	
   	
   Currently,	
   however,	
   with	
   the	
   exception	
   of	
   the	
   subordinated	
   equity	
   claims,	
   the	
   fact	
   remains	
   that	
   the	
   absolute	
   priority	
   rule	
   and	
   cramdown	
   provisions	
   that	
   exist	
   in	
   US	
   legislation	
   are,	
   contrastingly,	
   mostly	
   absent	
   in	
   Canadian	
   statutes,	
   which	
   presents	
   challenges	
   for	
   cross-­‐border	
   insolvencies.273	
  Adding	
   credit	
   bidding	
   to	
   Canadian	
   legislation	
   is	
   one	
   step	
   that	
   can	
   align	
   both	
   regimes	
   while	
   also	
   indirectly	
   furthering	
   the	
   absolute	
   priority	
   rule	
   in	
   Canada.	
   	
   Enabling	
   secured	
   creditors	
   to	
   bid	
   on	
   their	
   collateral	
   frustrates	
   other	
   would-­‐be	
   bidders,	
   including	
   equity	
   holders,	
   from	
   purchasing	
   the	
   collateral	
   at	
   a	
   deflated	
   value,	
   in	
   essence,	
   furthering	
   the	
   objective	
   of	
   the	
   absolute	
   priority	
  rule.	
  	
  	
   	
   Secondly,	
   credit	
   bidding	
   eliminates	
   the	
   necessity	
   of	
   raising	
   additional	
   capital	
   in	
   order	
  to	
  bid	
  on	
  collateral.	
  	
  This	
  is	
  of	
  primary	
  importance	
  for	
  secured	
  creditors	
  facing	
   difficulty	
   in	
   securing	
   short	
   term	
   financing274 	
  and	
   in	
   cases	
   where	
   the	
   additional	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   272 	
  See	
  BIA,	
  supra	
  note	
  170,	
  s	
  140.1	
  (“[a]	
  creditor	
  is	
  not	
  entitled	
  to	
  a	
  dividend	
  in	
  respect	
  of	
  an	
  equity	
   claim	
  until	
  all	
  claims	
  that	
  are	
  not	
  equity	
  claims	
  have	
  been	
  satisfied”);	
  CCAA,	
  supra	
  note	
  6,	
  s	
  22.1	
   (“[d]espite	
  subsection	
  22(1),	
  creditors	
  having	
  equity	
  claims	
  are	
  to	
  be	
  in	
  the	
  same	
  class	
  of	
  creditors	
  in	
   relation	
  to	
  those	
  claims	
  unless	
  the	
  court	
  orders	
  otherwise	
  and	
  may	
  not,	
  as	
  members	
  of	
  that	
  class,	
   vote	
  at	
  any	
  meeting	
  unless	
  the	
  court	
  orders	
  otherwise”).	
   273 	
  Madam	
  Justice	
  B.E.	
  Romaine,	
  “Reflection	
  on	
  Comity	
  and	
  Sovereignty	
  –	
  Ten	
  Years	
  Later”	
  in	
  Janis	
  P.	
   Sarra,	
  ed,	
  Annual	
  Review	
  of	
  Insolvency	
  Law	
  2012	
  (Toronto:	
  Thomson	
  Carswell,	
  2013)	
  1	
  at	
  23-­‐25.	
   274 	
  Resnick,	
  supra	
  note	
  55	
  at	
  355.	
  	
    	
    77	
    advances	
   in	
   capital	
   would	
   require	
   lender	
   syndicate	
   approval.275	
  	
   As	
   noted	
   by	
   Alan	
   Resnick,	
  in	
  today’s	
  modern	
  financial	
  world,	
  it	
  has	
  become	
  increasingly	
  common	
  for	
   lenders	
  to	
  be	
  consolidated	
  in	
  the	
  form	
  of	
  a	
  lender	
  syndicate	
  and	
  to	
  be	
  represented	
   by	
  an	
  agent.276	
  	
   In	
  cases	
  involving	
  a	
  sale	
  of	
  the	
  lender	
  syndicate’s	
  collateral,	
  it	
  could	
   prove	
   difficult	
   to	
   obtain	
   the	
   necessary	
   lender	
   syndicate	
   consent	
   to	
   contribute	
   additional	
   capital	
   towards	
   the	
   purchase	
   of	
   the	
   assets.277	
  	
   Furthermore,	
   without	
   a	
   system	
   in	
   place	
   to	
   compel	
   the	
   members	
   of	
   the	
   syndicate	
   to	
   furnish	
   the	
   necessary	
   funds	
   to	
   make	
   the	
   asset	
   purchase,	
   the	
   option	
   of	
   participating	
   in	
   an	
   auction	
   might	
   be	
   out	
  of	
  the	
  question.278	
  	
   Accordingly,	
  credit	
  bidding	
  provides	
  an	
  alternative	
  recourse	
   for	
  secured	
  creditors	
  when	
  lender	
  syndicates	
  are	
  involved.	
  	
  	
  	
   	
   Finally,	
   and	
   arguably	
   most	
   importantly,	
   credit	
   bidding	
   serves	
   as	
   an	
   alternative	
   means	
  for	
  secured	
  creditor	
  recovery	
  and	
  provides	
  the	
  secured	
  creditors	
  the	
  ability	
   to	
  bid	
  on	
  the	
  collateral	
  for	
  a	
  value	
  they	
  deem	
  to	
  be	
  fair.279	
  	
  Given	
  the	
  aforementioned	
   reasons,	
   an	
   argument	
   can	
   be	
   made	
   that	
   credit	
   bidding	
   should	
   be	
   enshrined	
   in	
   legislation	
  as	
  a	
  secured	
  creditor’s	
  right.	
   	
   7.3	
  Purposes	
  of	
  Canadian	
  and	
  US	
  Bankruptcy	
  Legislation	
   Conceding	
  that	
  credit	
  bidding	
  has	
  not	
  been	
  accepted	
  into	
  common	
  law	
  as	
  a	
  secured	
   creditor’s	
   right,	
   legislation	
   would	
   be	
   required	
   to	
   cement	
   credit	
   bidding	
   as	
   a	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   275 	
  See	
  Brad	
  B.	
  Erens	
  &	
  David	
  A.	
  Hall,	
  “Secured	
  Lender	
  Rights	
  in	
  363	
  Sales	
  and	
  Relates	
  Issues	
  of	
   Lender	
  Consent”	
  18	
  Am	
  Bankr	
  Inst	
  L	
  Rev	
  535	
  at	
  563-­‐564.	
  	
  	
   276 	
  Resnick,	
  supra	
  note	
  55	
  at	
  355.	
  	
   277 	
  Ibid.	
   278 	
  Ibid.	
   279 	
  11	
  USC	
  §	
  363(k)	
  (2012);	
  See	
  River	
  Road,	
  supra	
  note	
  12	
  at	
  650-­‐651.	
  	
   	
    78	
    guaranteed	
   option	
   for	
   secured	
   creditors	
   rather	
   than	
   relying	
   on	
   properly	
   drafted	
   security	
   agreements	
   that	
   include	
   credit	
   bidding.	
   	
   Having	
   explained	
   the	
   rationale	
   behind	
   the	
   US’	
   legislation	
   of	
   credit	
   bidding,	
   does	
   the	
   same	
   rationale	
   apply	
   to	
   Canada?	
   	
   	
   That	
   largely	
   depends	
   on	
   the	
   goals	
   that	
   each	
   jurisdiction’s	
   bankruptcy	
   legislation	
  is	
  meant	
  to	
  achieve.	
  	
  It	
  reasons	
  by	
  analogy	
  that	
  if	
  the	
  legislative	
  goals	
  of	
   both	
   the	
   US	
   and	
   Canadian	
   bankruptcy	
   legislation	
   are	
   similar,	
   then	
   credit	
   bidding	
   would	
   also	
   be	
   consistent	
   within	
   the	
   context	
   of	
   Canadian	
   legislation	
   and	
   should	
   be	
   thus	
  be	
  incorporated.	
  	
  	
  	
  	
   	
   Bankruptcy	
  legislation	
  in	
  the	
  US	
  serves	
  two	
  purposes:	
  providing	
  a	
  fresh	
  start	
  to	
  the	
   honest	
   and	
   unfortunate	
   debtor	
   while	
   settling	
   the	
   estate	
   for	
   the	
   benefit	
   of	
   creditors.280	
  	
  The	
  court	
  in	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC	
  stated	
  that	
  “Chapter	
  11	
   of	
  the	
  Bankruptcy	
  Code	
  strikes	
  a	
  balance	
  between	
  two	
  principal	
  interests:	
  facilitating	
   the	
  reorganization	
  and	
  rehabilitation	
  of	
  the	
  debtor	
  as	
  an	
  economically	
  viable	
  entity,	
   and	
   protecting	
   creditors’	
   interests	
   by	
   maximizing	
   the	
   value	
   of	
   the	
   bankruptcy	
   estate.”281	
  	
   In	
   In	
   re	
   Atlanta	
   Packaging	
   Products,	
   Inc.,	
   the	
   court	
   said,	
   “[i]t	
   is	
   a	
   well-­‐ established	
   principle	
   of	
   bankruptcy	
   law	
   that	
   the	
   objective	
   of	
   bankruptcy	
   sales…is	
   to	
   obtain	
  the	
  highest	
  price	
  or	
  greatest	
  overall	
  benefit	
  for	
  the	
  estate.”282	
  	
  As	
  seen	
  in	
  case	
   after	
  case,	
  maximization	
  of	
  the	
  estate’s	
  value	
  is	
  of	
  primary	
  importance	
  in	
  bankruptcy	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   280 	
  Barney,	
  supra	
  note	
  8	
  at	
  59.	
   281 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  303;	
  See	
  also	
  In	
  re	
  Integrated	
  Telecom	
   Express,	
  Inc.,	
  384	
  F	
  3d	
  108	
  at	
  119	
  (3d	
  Cir	
  2004).	
   282 	
  In	
  re	
  Atlanta	
  Packaging	
  Products,	
  Inc	
  .,	
  99	
  BR	
  124	
  at	
  131	
  (ND	
  Ga	
  1988).	
    	
    79	
    law.283	
  	
  Charles	
  Tabb	
  wrote	
  that	
  protecting	
  creditors’	
  interests	
  is	
  complicated	
  by	
  the	
   fact	
  that	
  there	
  are	
  usually	
  several	
  different	
  parties	
  involved	
  at	
  various	
  levels	
  in	
  the	
   bankruptcy	
   hierarchy,	
   each	
   competing	
   with	
   the	
   others	
   in	
   an	
   effort	
   to	
   achieve	
   the	
   most	
   beneficial	
   return	
   on	
   their	
   securities.284	
  	
   The	
   regular	
   privilege	
   typically	
   enjoyed	
   by	
  secured	
  creditors	
  in	
  regards	
  as	
  to	
  determining	
  when	
   and	
  how	
  they	
  might	
  realize	
   on	
   collateral	
   outside	
   of	
   a	
   bankruptcy	
   may	
   be	
   forgone	
   during	
   a	
   bankruptcy.285	
  	
   In	
   these	
   circumstances,	
   the	
   only	
   guaranteed	
   right	
   that	
   a	
   secured	
   creditor	
   has	
   is	
   the	
   “value”	
  of	
  the	
  collateral.286	
  	
  Credit	
  bidding	
  furthers	
  the	
  goal	
  of	
  “maximizing	
  the	
  value	
   of	
  the	
  bankruptcy	
  estate”	
  as	
  it	
  serves	
  to	
  prevent	
  undervaluation	
  of	
  the	
  collateral.	
  	
  	
   	
   Canadian	
  bankruptcy	
  legislation	
  focuses	
  on	
  “permit[ting]	
  the	
  debtor	
  to	
  continue	
  to	
   carry	
   on	
   business	
   and,	
   where	
   possible,	
   avoid	
   the	
   social	
   and	
   economic	
   costs	
   of	
   liquidating	
   its	
   assets.”287 	
  	
   However,	
   if	
   reorganization	
   should	
   fail,	
   the	
   insolvency	
   legislation	
   is	
   also	
   meant	
   to	
   protect	
   the	
   interests	
   of	
   a	
   bankrupt’s	
   creditors	
   and	
   to	
   ensure	
   the	
   fair	
   distribution	
   and	
   resolution	
   of	
   the	
   bankrupt’s	
   estate.288 	
  	
   Since	
   the	
   CCAA	
   is	
   silent	
   in	
   terms	
   of	
   a	
   failure	
   to	
   reorganize,	
   the	
   BIA	
   sets	
   out	
   the	
   relevant	
   scheme	
  of	
  priorities	
  should	
  a	
  CCAA	
  reorganization	
  not	
  succeed.289	
  	
  Another	
  objective	
   of	
   Canadian	
   bankruptcy	
   legislation	
   is	
   achieved	
   through	
   the	
   consolidation	
   of	
   all	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   283 	
  See	
  Unsecured	
  Creditors’	
  Committee	
  v	
  Southmark	
  Corp.	
  (In	
  re	
  Robert	
  L.	
  Helms	
  Const.	
  &	
  Dev.	
  Co.),	
   139	
  F	
  3d	
  702	
  at	
  706	
  (9th	
  Cir	
  1998);	
  Old	
  Carco	
  Motors	
  LLC	
  v	
  Suthers	
  (In	
  re	
  Old	
  Carco	
  LLC),	
  470	
  BR	
  688	
   at	
  704	
  (SD	
  NY	
  2012);	
  Commodity	
  Futures	
  Trading	
  Commission	
  v	
  Weintraub	
  et	
  al.,	
  471	
  US	
  343	
  at	
  352	
   (1985).	
  	
   284 	
  Tabb,	
  supra	
  note	
  14	
  at	
  110.	
   285 	
  Ibid	
  at	
  110.	
   286 	
  Ibid	
  at	
  110.	
   287 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  para	
  15.	
   288 	
  Arnco	
  Business	
  Services	
  Ltd.	
  (Re),	
  [1983]	
  OJ	
  No	
  974	
  at	
  para	
  4,	
  49	
  CBR	
  (NS)	
  188	
  (ON	
  H	
  Ct	
  J).	
   289 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  para	
  23.	
    	
    80	
    potential	
   actions	
   and	
   claims	
   against	
   the	
   debtor	
   into	
   one	
   collective	
   proceeding.290	
  	
   This	
  “single	
  proceeding	
  model”	
  prevents	
  each	
  creditor	
  from	
  striking	
  out	
  on	
  its	
  own	
   in	
   an	
   attempt	
   to	
   beat	
   out	
   other	
   creditors	
   to	
   the	
   assets	
   and,	
   instead,	
   facilitates	
   negotiations	
  amongst	
  the	
  creditors	
  and	
  debtor	
  to	
  reach	
  a	
  compromise.291	
  	
  	
  	
   	
   The	
   CCAA’s	
   primary	
   goal	
   is	
   to	
   enable	
   the	
   debtor	
   company	
   to	
   negotiate	
   with	
   its	
   creditors	
  in	
  an	
  attempt	
  to	
  reorganize	
  and	
  stay	
  in	
  business.292 	
  	
   As	
  described	
  in	
  Chef	
   Ready	
   Foods,	
   Ltd.	
   v.	
   Hongkong	
   Bank	
   of	
   Canada,	
   “[t]he	
   purpose	
   of	
   the	
   C.C.A.A.	
   is	
   to	
   facilitate	
  the	
  making	
  of	
  a	
  compromise	
  or	
  arrangement	
  between	
  an	
  insolvent	
  debtor	
   company	
   and	
   its	
   creditors	
   to	
   the	
   end	
   that	
   the	
   company	
   is	
   able	
   to	
   continue	
   in	
   business.”293 	
  	
   The	
   Supreme	
   Court	
   of	
   Canada	
   emphasized	
   in	
   Re	
   Indalex	
   Ltd.	
   the	
   remedial	
   nature	
   of	
   the	
   CCAA,	
   whereby	
   the	
   underlying	
   objective	
   “is	
   not	
   to	
   disadvantage	
   creditors	
   but	
   rather	
   to	
   try	
   to	
   provide	
   a	
   constructive	
   solution	
   for	
   all	
   stakeholders	
  when	
  a	
  company	
  has	
  become	
  insolvent.”294	
  	
   Creditors	
  are	
  not	
  the	
  only	
   major	
  player	
  in	
  reorganizations.	
  	
  A	
  key	
  goal	
  to	
  any	
  workout	
  under	
  the	
  CCAA	
  is	
  the	
   continuation	
  of	
  the	
  business	
  as	
  a	
  going	
  concern,	
  hence,	
  the	
  CCAA	
  is	
  also	
  mindful	
  of	
   other	
   parties	
   including	
   trade	
   suppliers,	
   employees	
   and	
   consumers	
   while	
   reorganization	
  is	
  underway.295	
  	
   It	
  also	
  serves	
  to	
  keep	
  the	
  creditors	
  at	
  bay	
  while	
  the	
   debtor	
  works	
  out	
  a	
  proposed	
  plan.	
  	
  The	
  fact	
  that	
  the	
  CCAA	
  is	
  more	
  concerned	
  with	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   290 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  para	
  22;	
  AbitibiBowater	
  Inc.,	
  Re,	
  2012	
  SCC	
  67	
  at	
  para	
  21,	
  221	
   ACWS	
  (3d)	
  264.	
   291 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  para	
  22.	
   292 	
  Ivaco	
  Inc.	
  (Re),	
  [2006]	
  OJ	
  No	
  4152	
  at	
  para	
  3,	
  83	
  OR	
  (3d)	
  108	
  (ONCA).	
   293 	
  Chef	
  Ready	
  Foods,	
  Ltd.	
  v	
  Hongkong	
  Bank	
  of	
  Canada,	
  [1990]	
  BCJ	
  No	
  2384,	
  51	
  BCLR	
  (2d)	
  84	
  (BCCA).	
   294 	
  Indalex,	
  Ltd.,	
  Re,	
  2013	
  SCC	
  6	
  at	
  para	
  205,	
  96	
  CBR	
  (5th)	
  171.	
   295 	
  Sarra,	
  “Debtor	
  in	
  Possession”,	
  supra	
  note	
  249	
  at	
  340.	
   	
    81	
    keeping	
   the	
   debtor	
   company	
   afloat	
   rather	
   than	
   liquidation	
   would	
   appear	
   to	
   downplay	
  the	
  usefulness	
  of	
  credit	
  bidding	
  in	
  a	
  CCAA	
  reorganization.	
  	
  Yet,	
  it	
  should	
   be	
   noted	
   that	
   in	
   recent	
   CCAA	
   cases	
   where	
   credit	
   bidding	
   has	
   been	
   employed,	
   the	
   subsequent	
   workouts	
   involved	
   sales	
   of	
   the	
   debtors’	
   companies	
   as	
   going-­‐concerns	
   rather	
  than	
  liquidations.296	
  	
   	
   However,	
  not	
  all	
  proposals	
  are	
  successful	
  and	
  the	
  CCAA	
  does	
  have	
  a	
  provision	
  that	
   allows	
   for	
   liquidation	
   of	
   the	
   company’s	
   assets	
   should	
   a	
   proposed	
   plan	
   fail.	
   	
   Courts	
   have	
   recognized	
   that	
   the	
  CCAA	
   may	
   be	
   used	
   for	
   the	
   sole	
   intention	
   of	
   winding-­‐up	
   a	
   company	
   and	
   not	
   just	
   as	
   an	
   alternative	
   solution	
   when	
   proposals	
   fail.297	
  	
   Justice	
   Campbell	
   stated	
   in	
   Re	
   TRG	
   Service	
   Inc.	
   that	
   the	
   CCAA	
   can	
   be	
   used	
   “to	
   permit	
   an	
   orderly	
   liquidation	
   that	
   would	
   permit	
   a	
   greater	
   distribution	
   to	
   creditors	
   than	
   would	
   be	
   possible	
   under	
   the	
   BIA.”298	
  	
   The	
   court	
   in	
   Re	
   Hollinger	
   Inc.	
   acknowledged	
   the	
   “application	
  of	
  judicial	
  discretion	
  and	
  flexibility	
  of	
  the	
  CCAA	
  to	
  achieve	
  a	
  variety	
  of	
   purposes	
   including…	
   the	
   ability	
   to	
   effect	
   a	
   sale	
   of	
   assets	
   and	
   winding	
   up	
   or	
   liquidation	
  of	
  a	
  debtor	
  company.”299	
  	
   In	
  fact,	
  in	
  Re	
   Indalex	
   Ltd.,	
  the	
  debtor	
  company	
   chose	
   to	
   pursue	
   liquidation	
   of	
   its	
   assets	
   under	
   the	
   CCAA	
  without	
   any	
   attempt	
   of	
   a	
   reorganization.300	
  	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   296 	
  PCAS	
  Patient	
  Care,	
  supra	
  note	
  238	
  at	
  para	
  8;	
  Canwest,	
  supra	
  note	
  232	
  at	
  para	
  13;	
  White	
  Birch	
   Paper	
  Holding	
  Company,	
  supra	
  note	
  236	
  at	
  para13.	
  	
   297 	
  Lehndorff	
  General	
  Partner	
  Ltd.	
  (Re),	
  [1993]	
  OJ	
  No	
  14,	
  17	
  CBR	
  (3d)	
  24.	
  	
   298 	
  TRG	
  Service	
  Inc.	
  (Re),	
  [2006]	
  OJ	
  No	
  4521	
  at	
  para	
  68,	
  26	
  CBR	
  (5th)	
  203.	
   299 	
  Hollinger	
  Inc.,	
  Re,	
  2012	
  ONSC	
  5107	
  at	
  para	
  42,	
  220	
  ACWS	
  (3d)	
  261.	
  	
   300 	
  Indalex	
  Ltd.,	
  Re,	
  2011	
  ONCA	
  265	
  at	
  para	
  180,	
  75	
  CBR	
  (5th)	
  19.	
    	
    82	
    Section	
   36	
   of	
   the	
   CCAA	
   details	
   that	
   the	
   court	
   may	
   approve	
   a	
   liquidation	
   of	
   the	
   debtor’s	
   assets	
   and	
   lists	
   the	
   factors	
   that	
   should	
   be	
   considered	
   in	
   doing	
   so.	
  	
   Subsection	
   36(4)	
   of	
   the	
   CCAA	
   states	
   that	
   the	
   consideration	
   received	
   for	
   the	
   asset	
   must	
   be	
   a	
   superior	
   offer	
   than	
   would	
   have	
   been	
   received	
   under	
   any	
   plan	
   of	
   reorganization.301 	
  	
   Hence,	
   the	
   CCAA	
   is	
   also	
   concerned	
   with	
   maximizing	
   creditor	
   recovery.302	
  	
   Accordingly,	
   it	
   would	
   not	
   be	
   a	
   reach	
   to	
   state	
   that	
   enabling	
   secured	
   creditors	
   to	
   credit	
   bid	
   on	
   assets	
   at	
   auction	
   would	
   further	
   the	
   goal	
   of	
   achieving	
   maximum	
   value	
   for	
   the	
   collateral.	
   	
   Making	
   credit	
   bidding	
   a	
   right	
   would	
   add	
   an	
   additional	
  safeguard	
  in	
  protecting	
  against	
  the	
  sale	
  of	
  assets	
  at	
  an	
  undervalued	
  rate,	
   which	
  is	
  in	
  line	
  with	
  the	
  objective	
  of	
  subsection	
  36(4).	
  	
  	
   	
   Similar	
  to	
  the	
  CCAA,	
  the	
  BIA	
  provides	
  the	
  debtor	
  with	
  the	
  means	
  to	
  reorganize	
  albeit	
   under	
  a	
  “rules-­‐based	
  mechanism	
  that	
  offers	
  less	
  flexibility.”303	
  	
  The	
  BIA	
  also	
  contains	
   express	
   language	
   for	
   liquidation	
   of	
   the	
   debtor’s	
   assets.	
   	
   When	
   reorganization	
   fails,	
   the	
  court	
  in	
  Abramyk	
  v.	
  Abramyk	
  stated:	
    	
    The	
   underlying	
   objective	
   of	
   the	
   Act	
   is	
   to	
   provide	
   for	
   an	
   orderly	
   and	
   efficient	
   means	
   of	
   realizing	
   on	
   the	
   property	
   of	
   the	
   bankrupt,	
   determining	
   legitimate	
   debts	
   and	
   liabilities,	
   applying	
   the	
   proceeds	
   of	
   disposition	
  to	
  those	
  debts	
  and	
  then	
  discharging	
  the	
  bankrupt	
  from	
  the	
   balance	
   of	
   those	
   debts	
   so	
   that	
   he	
   or	
   she	
   can	
   start	
   anew	
   with	
   a	
   clean	
   slate.304	
  	
  	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   301 	
  CCAA,	
  supra	
  note	
  6,	
  s	
  36(4).	
   302 	
  Janis	
  Sarra,	
  Rescue!	
  The	
  Companies’	
  Creditors	
  Arrangement	
  Act	
  (Toronto:	
  Thomson	
  Carswell,	
   2007)	
  at	
  10.	
  	
   303 	
  Century	
  Services,	
  supra	
  note	
  173	
  at	
  para	
  15.	
  	
  	
   304 	
  Abramyk	
  v	
  Abramyk,	
  2000	
  SKQB	
  473	
  at	
  para	
  14,	
  [2000]	
  SJ	
  No	
  705.	
   	
    83	
    The	
  court	
  in	
  Saulnier	
   v.	
   Royal	
   Bank	
   of	
   Canada	
  noted	
  that	
  the	
  BIA’s	
  overall	
  goal	
  is	
  to	
   balance	
  the	
  rights	
  of	
  creditors	
  with	
  the	
  desire	
  to	
  give	
  the	
  bankrupt	
  a	
  fresh	
  start.305	
  	
   Janis	
  Sarra	
  states	
  that	
  “Canada's	
  insolvency	
  and	
  bankruptcy	
  regime	
  has	
  traditionally	
   been	
   viewed	
   as	
   a	
   secured	
   creditor-­‐friendly	
   regime	
   in	
   that	
   the	
   legislative	
   history	
   has	
   been	
   one	
   of	
   protecting	
   senior	
   creditors'	
   claims,	
   subject	
   to	
   some	
   statutory	
   preferences.”306	
  	
   The	
   reasoning	
   behind	
   this	
   stance	
   is	
   Parliament’s	
   desire	
   to	
   ensure	
   debtors	
   have	
   access	
   to	
   credit	
   and	
   for	
   debtors	
   to	
   be	
   able	
   to	
   assess	
   lending	
   risks	
   with	
   some	
  certainty.307	
  	
  As	
  also	
  recently	
  stated	
  by	
  Janis	
  Sarra,:	
  	
   Objectives	
  of	
  the	
  insolvency	
  system	
  include	
  maximization	
   of	
   the	
   value	
   of	
   the	
   debtor	
   company's	
   assets	
   and	
   thus	
   overall	
   enterprise	
   value;	
   orderly	
   and	
   equitable	
   treatment	
   of	
   creditors;	
   protection	
   of	
   multiple	
   stakeholder	
   interests;	
   recognition	
   of	
   creditor	
   priorities;	
   consideration	
   of	
   the	
   public	
   interest	
   and	
   public	
   policy	
   implications	
   of	
   particular	
   decisions;	
   balancing	
   the	
   benefits	
   and	
   costs	
   of	
   liquidation	
   and	
   reorganization;	
  protection	
  of	
  the	
  position	
  of	
  regulators	
  under	
  securities,	
   environmental	
  and	
  other	
  remedial	
  legislation;	
  and	
  certainty,	
  timeliness	
   and	
  cost-­‐effectiveness	
  of	
  the	
  process.308	
   	
   Again,	
   credit	
   bidding	
   furthers	
   these	
   policy	
   objectives	
   by	
   ensuring	
   creditors	
   can	
   maximize	
  on	
  the	
  value	
  of	
  their	
  collateral	
  in	
  insolvency	
  proceedings.	
  	
   	
   7.4	
  Arguments	
  Against	
  Credit	
  Bidding	
   Credit	
  bidding	
  is	
  not	
  without	
  its	
  critics.309 	
  	
  Arguments	
  against	
  credit	
  bidding	
  include	
   the	
   potential	
   “chilling	
   effect”	
   it	
   might	
   have	
   on	
   would-­‐be	
   bidders, 310 	
  deterring	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   305 	
  Saulnier	
  v	
  Royal	
  Bank	
  of	
  Canada,	
  2008	
  SCC	
  58	
  at	
  para	
  17,	
  [2008]	
  3	
  SCR	
  166.	
   306 	
  Sarra,	
  “Debtor	
  in	
  Possession”,	
  supra	
  note	
  249	
  at	
  347.	
   307 	
  Ibid	
  at	
  347.	
   308 	
  Janis	
  Sarra,	
  “Reflections	
  on	
  a	
  Decade	
  of	
  Financing	
  Insolvency	
  Restructurings”	
  in	
  Janis	
  P.	
  Sarra,	
  ed,	
   Annual	
  Review	
  of	
  Insolvency	
  Law	
  2012	
  (Toronto:	
  Thomson	
  Carswell,	
  2013)	
  59	
  at	
  60-­‐61	
  [emphasis	
   added].	
   309 	
  See	
  Jacob	
  A.	
  Kling,	
  “Rethinking	
  363	
  Sales”	
  (2012)	
  17	
  Stan	
  JL	
  Bus	
  &	
  Fin	
  258;	
  	
  Tabb,	
  supra	
  note	
  14.	
  	
    	
    84	
    potentially	
   interested	
   parties	
   from	
   submitting	
   a	
   bid	
   at	
   auction.311	
  	
   In	
   situations	
   involving	
  lender	
  syndicates	
  where	
  an	
  agent	
  is	
  involved,	
  dissenting	
  minorities	
  have	
   disputed	
   the	
   agent’s	
   authority	
   to	
   submit	
   a	
   credit	
   bid	
   using	
   all	
   of	
   the	
   outstanding	
   debt. 312 	
  	
   Valuation	
   issues	
   also	
   arise	
   in	
   the	
   context	
   of	
   credit	
   bidding,	
   where	
   opponents	
  have	
  argued	
  that	
  the	
  valuation	
  of	
  credit	
  bids	
  should	
  be	
  limited	
  to	
  the	
  fair	
   market	
   value	
   of	
   the	
   collateral	
   and	
   not	
   the	
   total	
   debt	
   obligation	
   secured	
   by	
   the	
   collateral.313	
  	
   Yet	
   another	
   argument	
   rests	
   on	
   the	
   premise	
   that	
   the	
   secured	
   lenders	
   who	
   are	
   credit	
   bidding	
   their	
   claim	
   are	
   often	
   in	
   a	
   position	
   to	
   influence	
   the	
   sales	
   process.	
  	
  The	
  issue	
  then	
  becomes	
  on	
  ensuring	
  the	
  fairness	
  and	
  integrity	
  of	
  the	
  sales	
   process.	
  	
  These	
  issues	
  are	
  addressed	
  in	
  sequence.	
  	
  	
  	
   	
   7.4.1	
  Chilling	
  	
   One	
   argument	
   against	
   credit	
   bidding	
   rests	
   on	
   the	
   notion	
   that	
   it	
   could	
   potentially	
   chill	
   cash	
   bidders.314 	
  	
   The	
   premise	
   is	
   that	
   if	
   a	
   credit	
   bidder	
   holds	
   a	
   claim	
   that	
   out-­‐ weighs	
  the	
  market	
  value	
  of	
  the	
  collateral,	
  then	
  that	
  credit	
  bidder	
  would	
  be	
  able	
  to	
   outbid	
   any	
   cash	
   bidder.315	
  	
   Assuming	
   then	
   that	
   the	
   cash	
   bidders	
   are	
   aware	
   of	
   the	
   potential	
  credit	
  bidder	
  and	
  the	
  value	
  of	
  the	
  debt,	
  the	
  argument	
  states	
  that	
  the	
  cash	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   310 	
  Kling,	
  supra	
  note	
  309	
  at	
  280-­‐282.	
   311 	
  William	
  Miller	
  Collier,	
  Collier	
  on	
  Bankruptcy,	
  16th	
  ed	
  by	
  Alan	
  N.	
  Resnick	
  &	
  Henry	
  J.	
  Sommer	
  (New	
   Providence,	
  NJ:	
  LexisNexis	
  2009)	
  at	
  para	
  363.09[1],	
  cited	
  in	
  In	
  re	
  River	
  Road	
  Hotel	
  Partners,	
  LLC,	
   supra	
  note	
  68	
  at	
  6.	
  	
   312 	
  See	
  In	
  re	
  Metaldyne	
  Corp.,	
  409	
  BR	
  671	
  (Bankr	
  SD	
  NY	
  2009)	
  [In	
  re	
  Metaldyne	
  Corp.].	
  	
  	
   313 	
  See	
  SubMicron,	
  supra	
  note	
  53.	
   314 	
  Kling,	
  supra	
  note	
  309	
  at	
  280-­‐282.	
   315 	
  Kling,	
  supra	
  note	
  309	
  at	
  280-­‐202.	
  	
    	
    85	
    bidders	
   would	
   be	
   deterred	
   from	
   submitting	
   competing	
   bids	
   knowing	
   that	
   the	
   credit	
   bidder	
  has	
  the	
  ability	
  to	
  outbid	
  them.316	
  	
   	
   The	
   court	
   in	
   In	
   re	
   River	
   Road	
   Hotel	
   Partners,	
   LLC	
   viewed	
   chilling	
   as	
   a	
   viable	
   argument	
   that	
   can	
   be	
   used	
   to	
   deny	
   the	
   lender	
   the	
   option	
   to	
   credit	
   bid.317	
  	
   In	
   coming	
   to	
   this	
   conclusion,	
   the	
   court	
   referenced	
  Collier	
   on	
   Bankruptcy,	
   which	
   states	
   that	
   the	
   court	
  could	
  deny	
  credit	
  bidding	
  if	
  it	
  was	
  viewed	
  that	
  allowing	
  the	
  bid	
  would	
  chill	
  the	
   process.318	
  	
  However,	
  the	
  court	
  went	
  on	
  to	
  add	
  that	
  the	
  debtor	
  is	
  required	
  to	
  provide	
   evidence	
  substantiating	
  the	
  potential	
  chilling	
  effect,	
  which	
  the	
  debtor	
  had	
  failed	
  to	
   do	
  in	
  the	
  case	
  at	
  bar.319	
   	
   The	
   Bankruptcy	
   Court	
   in	
   Philadelphia	
   also	
   noted	
   that	
   credit	
   bidding	
   could	
   potentially	
   have	
   a	
   chilling	
   effect.	
   	
   In	
   that	
   case,	
   the	
   debtors	
   stated	
   that	
   the	
   lenders’	
   claim	
   to	
   the	
   secured	
   assets	
   far	
   exceeded	
   their	
   actual	
   market	
   value,	
   and	
   would	
   subsequently	
  deter	
  any	
  potential	
  bidders	
  from	
  expending	
  time	
  and	
  energy	
  to	
  bid	
  on	
   those	
  assets.320	
  	
  Hence,	
  the	
  debtors	
  reasoned	
  that	
  in	
  order	
  to	
  maintain	
  a	
  fair	
  auction,	
   the	
   lenders	
   should	
   be	
   denied	
   the	
   right	
   to	
   credit	
   bid.	
   	
   The	
   lenders	
   alternatively	
   argued	
  that	
  denying	
  them	
  the	
  right	
  to	
  credit	
  bid	
  would	
  be	
  “chilling”	
  in	
  its	
  own	
  way,	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   316 	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  supra	
  note	
  11	
  at	
  321.	
   317 	
  In	
  re	
  River	
  Road	
  Hotel	
  Partners,	
  LLC,	
  supra	
  note	
  68	
  at	
  5-­‐6.	
   318 	
  William	
  Miller	
  Collier,	
  Collier	
  on	
  Bankruptcy,	
  16th	
  ed	
  by	
  Alan	
  N.	
  Resnick	
  &	
  Henry	
  J.	
  Sommer	
  (New	
   Providence,	
  NJ:	
  LexisNexis	
  2009)	
  at	
  para	
  363.09[1],	
  cited	
  in	
  In	
  re	
  River	
  Road	
  Hotel	
  Partners,	
  LLC,	
   supra	
  note	
  68	
  at	
  6. 319 	
  In	
  re	
  River	
  Road	
  Hotel	
  Partners,	
  LLC,	
  supra	
  note	
  68	
  at	
  6.	
  	
   320 	
  Philadelphia,	
  supra	
  note	
  111	
  at	
  10.	
    	
    86	
    by	
   preventing	
   the	
   lenders	
   from	
   bidding	
   on	
   the	
   assets,	
   and	
   thereby	
   creating	
   a	
   less	
   competitive	
  auction.321	
  	
  The	
  Bankruptcy	
  Court	
  sided	
  with	
  the	
  lenders.	
  	
   	
   	
   While	
  the	
  above	
  case	
  examined	
  the	
  notion	
  that	
  “chilling”	
  could	
  occur	
  from	
  allowing	
   or	
  denying	
  a	
  credit	
  bid,	
  there	
  has	
  been	
  very	
  little	
  case	
  law	
  to	
  date	
  that	
  has	
  denied	
   credit	
  bidding	
  solely	
  on	
  the	
  basis	
  of	
  a	
  potential	
  chilling	
  effect.322 	
  	
  Buccola	
  &	
  Keller	
  go	
   so	
   far	
   as	
   to	
   completely	
   refute	
   the	
   “chilling”	
   argument	
   through	
   an	
   illustrative	
   example:	
   For	
   instance,	
   if	
   a	
   would-­‐be	
   bidder	
   knows	
   that	
   Warren	
   Buffett	
   plans	
   to	
   attend	
   an	
   auction,	
   she	
   is	
   also	
   surely	
   aware	
   that	
   Buffett	
   can	
   top	
   her	
   reservation	
   price	
   for	
   any	
   or	
   all	
   of	
   the	
   assets	
   on	
   the	
   block.	
   Yet	
   nobody	
   proposes	
   to	
   ban	
   wealthy	
  cash	
  bidders	
   from	
   participating	
   in	
   a	
   bankruptcy	
  auction.	
  	
  	
   	
   That,	
   of	
   course,	
   makes	
   good	
   economic	
   sense.	
   	
   Would-­‐be	
   bidders	
   understand	
   that	
   a	
   deep-­‐pocketed	
   player's	
  ability	
  to	
   top	
   their	
   reservation	
  price	
  does	
  not	
  imply	
  a	
  willingness	
  to	
  do	
  so.	
  Warren	
  Buffett	
   did	
   not	
   become	
   wealthy	
   by	
   overpaying	
   for	
   things,	
   so	
   it	
   is	
   possible,	
   indeed,	
  probable,	
  that	
  his	
  reservation	
  price	
  for	
  an	
  asset	
  at	
  auction	
  will	
   be	
  beneath	
  that	
  of	
  another	
  buyer.	
  And	
  buyers	
  know	
  this	
  in	
  advance.	
  The	
   same	
  logic	
  holds	
  for	
  secured	
  creditors.323	
  	
   	
   While	
  critics	
  have	
  suggested	
  that	
  potential	
  chilling	
  is	
  indeed	
  a	
  prominent	
  issue	
  that	
   hampers	
   perceived	
   benefits	
   from	
   credit	
   bidding,324	
  the	
   case	
   law	
   seems	
   to	
   contend	
   otherwise.325	
   	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   321 	
  Philadelphia,	
  supra	
  note	
  111	
  at	
  28-­‐29.	
   322 	
  See	
  In	
  re	
  Morgan	
  House	
  General	
  Partnership,	
  1997	
  US	
  Dist	
  LEXIS	
  1306	
  (ED	
  Pa	
  1997)	
  (refused	
  to	
   prohibit	
  credit	
  bid	
  based	
  on	
  potential	
  to	
  chill	
  bidding	
  process)	
  [In	
  re	
  Morgan	
  House].	
   323 	
  Buccola,	
  supra	
  note	
  140	
  at	
  123	
  [emphasis	
  added].	
   324 	
  Kling,	
  supra	
  note	
  309	
  at	
  283.	
  	
  	
   325 	
  See	
  In	
  re	
  Morgan	
  House,	
  supra	
  note	
  322;	
  Philadelphia,	
  supra	
  note	
  111.	
   	
    87	
    7.4.2	
  Majority	
  Lenders	
  vs.	
  Minority	
  Lenders	
  	
  	
   Where	
   there	
   is	
   one	
   senior	
   secured	
   creditor,	
   the	
   decision	
   to	
   credit	
   bid	
   is	
   relatively	
   straightforward.	
  	
  However,	
  when	
  the	
  senior	
  creditor	
  involves	
  a	
  syndicate	
  of	
  lenders,	
   the	
  potential	
  for	
  discord	
  amongst	
  the	
  various	
  creditors	
  increases.	
  	
  As	
  seen	
  in	
  White	
   Birch	
   where	
   the	
   lenders	
   fragmented	
   into	
   two	
   parties	
   involving	
   majority	
   and	
   minority	
   lenders,	
   lender	
   syndicates	
   pose	
   an	
   additional	
   obstacle	
   for	
   credit	
   bidding.	
  	
   While	
  having	
  previously	
  discussed	
  the	
  advantages	
  of	
  credit	
  bidding	
  in	
  the	
  context	
  of	
   a	
  lender	
  syndicate	
  earlier	
  in	
  this	
  Chapter,	
  the	
  inherent	
  nature	
  of	
  lender	
  syndicates	
   as	
   being	
   composed	
   of	
   several	
   creditors,	
   escalates	
   the	
   opportunity	
   for	
   creditors	
   to	
   disagree	
  amongst	
  themselves	
  in	
  respect	
  to	
  submitting	
  a	
  credit	
  bid	
  at	
  an	
  asset	
  sale.	
  	
   The	
   US	
   and	
   Canada	
   have	
   addressed	
   this	
   dilemma	
   by	
   relying	
   on	
   provisions	
   in	
   the	
   security	
   agreements	
   and	
   loan	
   documents	
   to	
   override	
   the	
   dissenting	
   minority	
   and	
   approve	
  sales	
  that	
  sell	
  assets	
  free	
  and	
  clear	
  to	
  majority	
  lenders	
  using	
  credit	
  bids.326	
  	
  	
  	
   	
   The	
  US	
  court	
  in	
  In	
  re	
  Metaldyne	
  Corp.	
  approved	
  the	
  right	
  of	
  the	
  agent	
  to	
  credit	
  bid	
  as	
   directed	
   by	
   the	
   holders	
   of	
   the	
   first	
   lien	
   debt	
   over	
   objections	
   of	
   the	
   minority	
   lenders,	
   which	
   held	
   $3.5	
   million	
   of	
   the	
   $425	
   million	
   owed.327	
  	
   The	
   lenders’	
   rights	
   were	
   governed	
   by	
   both	
   the	
   security	
   agreement	
   and	
   the	
   credit	
   agreement.	
   	
   These	
   agreements	
  “irrevocably	
  appointed”	
  the	
  agent	
  upon	
  default,	
  whereby	
  the	
  agent	
  then	
   credit	
   bid	
   the	
   full	
   value	
   of	
   the	
   lenders’	
   claim.328	
  	
   The	
   minority	
   lenders	
   objected,	
   first	
   arguing	
   that	
   only	
   they	
   could	
   credit	
   bid	
   their	
   claim,	
   and	
   in	
   the	
   alternative,	
   that	
   the	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   326 	
  See	
  In	
  re	
  Metaldyne	
  Corp.,	
  supra	
  note	
  312;	
  In	
  re	
  GWLS	
  Holdings,	
  Inc.,	
  2009	
  Bankr	
  LEXIS	
  378	
   (Bankr	
  D	
  Del);	
  White	
  Birch,	
  supra	
  note	
  13.	
  	
   327 	
  In	
  re	
  Metaldyne	
  Corp.,	
  supra	
  note	
  312.	
  	
   328 	
  In	
  re	
  Metaldyne	
  Corp.,	
  supra	
  note	
  312	
  at	
  676.	
   	
    88	
    agent	
  must	
  first	
  have	
  obtained	
  the	
  minority	
  lenders’	
  written	
  consent.329	
  	
   The	
  court	
   found	
   that	
   the	
   loan	
   documents	
   had	
   delegated	
   authority	
   to	
   the	
   agent,	
   and	
   as	
   such,	
   approved	
  the	
  sale.	
  	
  	
   	
   In	
  re	
  GWLS	
  Holdings,	
  Inc.	
  also	
  dealt	
  with	
  a	
  similar	
  lender	
  syndicate	
  issue.330	
  	
  The	
  first	
   lien	
  lenders’	
  agent	
  submitted	
  a	
  credit	
  bid	
  on	
  substantially	
  all	
  of	
  the	
  debtors’	
  assets.	
  	
   All	
  but	
  one	
  of	
  the	
  first	
  lien	
  lenders	
  consented	
  to	
  the	
  credit	
  bid,	
  Grace	
  Bay,	
  which	
  held	
   $1	
  million	
  of	
  the	
  $366	
  million	
  in	
  outstanding	
  debt.	
  	
  Grace	
  Bay	
  pointed	
  to	
  the	
  credit	
   agreement	
   stating	
   that	
   no	
   amendment,	
   supplement	
   or	
   modification	
   of	
   the	
   agreement	
   could	
   be	
   made	
   without	
   unanimous	
   lender	
   consent.	
   	
   The	
   first	
   lien	
   agent	
   relied	
   on	
   the	
   credit	
   agreement	
   and	
   the	
   collateral	
   agreement,	
   which	
   irrevocably	
   appointed	
   the	
   first	
   lien	
   agent,	
   as	
   confirmation	
   of	
   it’s	
   authority	
   to	
   credit	
   bid	
   the	
   entire	
   value	
   of	
   the	
   debt	
   owed.	
   	
   The	
   court	
   placed	
   great	
   importance	
   on	
   the	
   fact	
   that	
   both	
  the	
  credit	
  agreement	
  and	
  collateral	
  agreement	
  were	
  drafted	
  at	
  the	
  same	
  time,	
   and	
   therefore,	
   the	
   collateral	
   agreement	
   could	
   not	
   be	
   viewed	
   as	
   amending	
   or	
   changing	
   in	
   anyway	
   the	
   credit	
   agreement.	
   	
   Both	
   documents	
   had	
   to	
   be	
   read	
   as	
   complementing	
   one	
   another.	
   	
   The	
   collateral	
   agreement	
   delegated	
   the	
   rights	
   and	
   remedies	
   traditionally	
   enjoyed	
   by	
   lenders	
   to	
   the	
   first	
   lien	
   agent.	
   	
   The	
   court	
   concluded	
   that	
   the	
   first	
   lien	
   agent	
   was	
   acting	
   within	
   its	
   authority	
   to	
   credit	
   bid	
   the	
   debt	
  on	
  behalf	
  of	
  all	
  of	
  the	
  first	
  lien	
  lenders.	
  	
  	
  	
  	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   329 	
  In	
  re	
  Metaldyne	
  Corp.,	
  supra	
  note	
  312	
  at	
  675.	
   330 	
  In	
  re	
  GWLS	
  Holdings,	
  Inc.,	
  supra	
  note	
  326.	
   	
    89	
    The	
  ability	
  of	
  majority	
  lenders	
  to	
  credit	
  bid	
  has	
  also	
  been	
  addressed	
  in	
  a	
  Canadian	
   context	
  in	
  White	
  Birch.	
  	
  The	
  case	
  discussed	
  the	
  issue	
  of	
  whether	
  or	
  not	
  the	
  majority	
   lenders,	
  which	
  were	
  viewed	
  as	
  acting	
  in	
  an	
  agent	
  capacity	
  for	
  the	
  minority	
  lenders,	
   were	
   allowed	
   to	
   credit	
   bid	
   through	
   the	
   various	
   lien	
   and	
   security	
   agreements.	
   	
   The	
   court	
   found	
   the	
   various	
   security	
   documents	
   highly	
   persuasive	
   in	
   determining	
   that	
   the	
   majority	
   lenders	
   were	
   entitled	
   to	
   credit	
   bid	
   despite	
   not	
   having	
   obtained	
   the	
   minority’s	
  consent.	
  	
  	
   	
   While	
  these	
  cases	
  have	
  ruled	
  in	
  favour	
  of	
  credit	
  bidding	
  by	
  the	
  majority	
  lenders,	
  it	
   does	
   not	
   diminish	
   the	
   fact	
   that	
   there	
   is	
   still	
   an	
   ongoing	
   dilemma	
   faced	
   by	
   lender	
   syndicates	
   when	
   dissenting	
   minority	
   parties	
   are	
   involved.	
   	
   The	
   security	
   agreements	
   have	
  played	
  key	
  roles	
  in	
  both	
  the	
  US	
  and	
  Canadian	
  courts’	
  decisions	
  to	
  approve	
  the	
   use	
   of	
   a	
   credit	
   bid	
   by	
   the	
   majority	
   lenders.	
   	
   Yet,	
   an	
   argument	
   could	
   be	
   made	
   that	
   although	
   the	
   security	
   agreements	
   expressly	
   authorize	
   agents	
   to	
   deal	
   with	
   the	
   collateral,	
   each	
   lender	
   is	
   the	
   owner	
   of	
   his	
   or	
   her	
   own	
   debt	
   and	
   any	
   credit	
   bid	
   the	
   agents	
  purport	
  to	
  make	
  is,	
  in	
  fact,	
  the	
  equivalent	
  of	
  forcing	
  each	
  lender	
  to	
  submit	
  a	
   cash	
  bid.331	
  	
  	
  	
  	
  	
  	
  	
  	
   	
   7.4.3	
  Valuation	
  of	
  Credit	
  Bids	
   Another	
  popular	
  issue	
  with	
  respect	
  to	
  credit	
  bidding	
  surrounds	
  the	
  question	
  of	
  the	
   appropriate	
   dollar	
   value	
   to	
   be	
   attributed	
   to	
   credit	
   bids.	
   	
   Those	
   against	
   the	
   use	
   of	
   credit	
  bidding	
  generally	
  argue	
  that	
  the	
  value	
  of	
  the	
  credit	
  bid	
  should	
  be	
  limited	
  to	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   331 	
  Erens,	
  supra	
  note	
  275	
  at	
  565-­‐566.	
  	
  	
   	
    90	
    the	
   economic	
   value	
   of	
   the	
   collateral.332	
  	
   This	
   “economic	
   value”	
   approach	
   to	
   credit	
   bidding	
   was	
   the	
   precise	
   argument	
   put	
   forward	
   in	
   In	
   re	
   SubMicron	
   Systems	
   Corporation,	
  whereby	
  several	
  secured	
  creditors	
  came	
  to	
  an	
  agreement	
  with	
  Sunrise	
   Capital	
   Partners	
   to	
   credit	
   bid	
   their	
   secured	
   claims	
   towards	
   the	
   purchase	
   of	
   SubMicron’s	
   assets	
   in	
   return	
   for	
   equity	
   in	
   Sunrise	
   Capital	
   Partners’	
   new	
   entity	
   created	
   for	
   the	
   purpose	
   of	
   purchasing	
   the	
   assets.333	
  	
   The	
   sale	
   was	
   then	
   approved	
   by	
   the	
  District	
  Court.334	
  	
   On	
  appeal	
  to	
  the	
  Third	
  circuit,	
  the	
  Plan	
  Administrator,	
  acting	
   on	
   behalf	
   of	
   the	
   unsecured	
   creditors,	
   opposed	
   the	
   sale	
   on	
   several	
   grounds	
   including	
   the	
  improper	
  use	
  of	
  a	
  credit	
  bid.	
  	
  The	
  Plan	
  Administrator	
  submitted	
  that	
  in	
  order	
  for	
   the	
  secured	
  creditors	
  to	
  be	
  entitled	
  to	
  credit	
  bid,	
  the	
  collateral	
  that	
  secures	
  the	
  claim	
   must	
   have	
   an	
   economic	
   value	
   in	
   accordance	
   with	
   	
   §	
   506(a).	
   	
   Since	
   the	
   collateral	
   was	
   found	
   to	
   be	
   of	
   nominal	
   value,	
   the	
   Plan	
   Administrator	
   stated	
   that	
   the	
   secured	
   creditors	
  should	
  not	
  be	
  allowed	
  to	
  credit	
  bid.	
  	
  	
   	
   The	
  court	
  disagreed	
  with	
  the	
  Plan	
  Administrator’s	
  argument,	
  citing	
  several	
  cases	
  to	
   support	
   the	
   premise	
   that	
   “creditors	
   can	
   bid	
   the	
   full	
   face	
   value	
   of	
   their	
   secured	
   claim	
   under	
   §	
   363(k).”335	
  	
   The	
   court	
   pointed	
   to	
   In	
  re	
  Suncruz	
  Casinos,	
  LLC,	
   where	
   the	
   court	
   found	
  that	
  “the	
  plain	
  language	
  of	
  the	
  statute	
  makes	
  clear	
  that	
  the	
  secured	
  creditor	
   may	
   credit	
   bid	
   its	
   entire	
   claim,	
   including	
   any	
   undersecured	
   deficiency	
   portion	
    	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   332 	
  SubMicron,	
  supra	
  note	
  53	
  at	
  459-­‐460.	
  	
   333 	
  SubMicron,	
  supra	
  note	
  53.	
   334 	
  Cohen	
  v	
  KB	
  Mezzanine	
  Fund	
  II,	
  LP	
  (In	
  re	
  Submicron	
  Systems	
  Corporation),	
  291	
  BR	
  314	
  (Bankr	
  D	
   Del	
  2003).	
  	
   335 	
  SubMicron,	
  supra	
  note	
  53	
  at	
  460.	
   	
    91	
    thereof.”336	
  	
   In	
   response,	
   the	
   Plan	
   Administrator	
   argued	
   that	
   the	
   secured	
   creditors	
   were	
   not	
   just	
   partially	
   undersecured	
   but	
   were	
   completely	
   undersecured,	
   distinguishing	
  this	
  case	
  from	
  the	
  other	
  cases	
  the	
  court	
  previously	
  cited.	
  	
  The	
  court	
   was	
  not	
  swayed	
  by	
  this	
  argument	
  either,	
  pointing	
  out	
  that	
  regardless	
  of	
  the	
  extent	
  to	
   which	
  the	
  secured	
  creditors	
  are	
  undersecured,	
  they	
  are	
  still	
  entitled	
  to	
  the	
  proceeds	
   from	
  the	
  sale	
  of	
  the	
  assets.	
  	
  As	
  such,	
  credit	
  bidding	
  merely	
  “preserve[d]	
  their	
  right	
  to	
   the	
  proceeds.”337	
  	
   	
  	
   	
   White	
  Birch	
  also	
   dealt	
   with	
   the	
   question	
   of	
   valuation,	
   stating	
   “it	
   goes	
   without	
   saying	
   that	
  the	
  amount	
  of	
  the	
  credit	
  bid	
  should	
  not	
  exceed,	
  but	
  should	
  be	
  allowed	
  to	
  go	
  as,	
   high	
  as	
  the	
  face	
  value	
  amount	
  of	
  the	
  credit	
  instrument	
  upon	
  which	
  the	
  credit	
  bidder	
   is	
   allowed	
   to	
   rely.”338	
  	
   The	
   court	
   went	
   on	
   to	
   note	
   that	
   the	
   value	
   of	
   the	
   credit	
   bid	
   should	
   not	
   be	
   subject	
   to	
   the	
   fair	
   market	
   value	
   of	
   the	
   assets.339	
  	
   It	
   was	
   the	
   court’s	
   opinion	
  that	
  this	
  practice	
  had	
  been	
  well-­‐established	
  in	
  Canada.	
   	
   Although	
   parties	
   have	
   attempted	
   to	
   argue	
   against	
   the	
   secured	
   creditors’	
   ability	
   to	
   credit	
   bid	
   the	
   full	
   face	
   value	
   of	
   the	
   claim,	
   the	
   courts	
   in	
   both	
   the	
   US	
   and	
   Canada	
   have	
   rejected	
   these	
   submissions	
   with	
   relative	
   ease.	
   	
   While	
   these	
   previous	
   unsuccessful	
   attempts	
   at	
   arguing	
   against	
   the	
   current	
   method	
   of	
   valuation	
   will	
   not	
   likely	
   deter	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   336 	
  In	
  re	
  Suncruz	
  Casinos,	
  LLC,	
  298	
  BR	
  833	
  at	
  839	
  (Bankr	
  SD	
  Fla	
  2003).	
  	
  See	
  In	
  re	
  Midway	
  Investments,	
   Ltd.,	
  187	
  BR	
  382	
  (Bank	
  SD	
  Fla	
  1995)	
  (“[s]ection	
  363(k)	
  provides	
  the	
  right	
  to	
  credit	
  bid	
  the	
  full	
   amount	
  of	
  the	
  claim”	
  at	
  391);	
  In	
  re	
  Morgan	
  House,	
  supra	
  note	
  322;	
  	
  In	
  re	
  Realty	
  Investments,	
  Ltd.	
  V,	
  72	
   BR	
  143	
  (Bankr	
  CD	
  Cal	
  1987)	
  (the	
  ‘allowed	
  claim’…must	
  (for	
  purposes	
  of	
  credit	
  bidding),	
  be	
  its	
  total	
   claim	
  without	
  reference	
  to	
  the	
  ‘value’	
  of	
  the	
  property”	
  at	
  146).	
   337 	
  SubMicron,	
  supra	
  note	
  53	
  at	
  461.	
   338 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  34.	
   339 	
  White	
  Birch,	
  supra	
  note	
  13	
  at	
  para	
  34.	
    	
    92	
    potential	
   parties	
   from	
   raising	
   this	
   issue	
   in	
   the	
   future,	
   current	
   case	
   law	
   has	
   shown	
   the	
  courts	
  as	
  being	
  resolute	
  on	
  this	
  subject.	
  	
   	
   7.4.4	
  Secured	
  Creditors	
  and	
  the	
  Integrity	
  of	
  the	
  Sale	
  Process	
   If	
  secured	
  lenders	
  choose	
  to	
  credit	
  bid	
  their	
  claim	
  at	
  a	
  sale	
  of	
  the	
  assets,	
  a	
  primary	
   concern	
   is	
   the	
   ability	
   of	
   the	
   secured	
   creditor	
   “to	
   truncate	
   the	
   sales	
   process	
   or	
   otherwise	
   manipulate	
   the	
   process	
   in	
   such	
   a	
   way	
   that	
   the	
   credit	
   bid	
   is	
   a	
   foregone	
   conclusion	
  or	
  value	
  is	
  not	
  otherwise	
  maximized	
  for	
  subordinate	
  creditors.”340	
  	
   The	
   court	
   in	
   Canwest	
   Publishing	
   Inc.,	
   dealt	
   precisely	
   with	
   this	
   issue.341 	
  	
   Faced	
   with	
   accumulating	
  liabilities,	
  the	
  debtor	
  company	
  came	
  to	
  an	
  agreement	
  with	
  its	
  senior	
   secured	
   lenders.	
   	
   According	
   to	
   the	
   agreement,	
   the	
   secured	
   lenders	
   would	
   offer	
   a	
   stalking	
   horse	
   credit	
   bid	
   in	
   return	
   for	
   substantially	
   all	
   of	
   the	
   debtors’	
   assets.	
   	
   If	
   a	
   solicitation	
   process	
   failed	
   to	
   produce	
   a	
   better	
   offer,	
   then	
   the	
   debtor	
   company	
   would	
   proceed	
   with	
   the	
   secured	
   lenders’	
   credit	
   bid.	
   	
   A	
   more	
   favourable	
   bid	
   was	
   submitted	
   by	
   an	
   entity	
   comprised	
   of	
   9.25%	
   of	
   senior	
   subordinated	
   noteholders	
   representing	
   certain	
   unsecured	
   creditors;	
   however,	
   this	
   offer	
   was	
   contingent	
   on	
   the	
   entity	
   securing	
  financing.	
  	
  The	
  debtor	
  company	
  proceeded	
  in	
  a	
  manner	
  that	
  resulted	
  in	
  a	
   “dual	
   track”,	
   with	
   the	
   debtor	
   company	
   complying	
   both	
   with	
   the	
   secured	
   creditors’	
   support	
  agreement	
  that	
  provided	
  the	
  credit	
  bid	
  while	
  simultaneously	
  taking	
  steps	
  to	
   finalize	
   an	
   asset	
   sale	
   to	
   the	
   senior	
   subordinated	
   noteholders.	
   	
   In	
   the	
   end,	
   an	
   asset	
   sale	
   was	
   concluded	
   with	
   the	
   senior	
   subordinated	
   noteholders,	
   but	
   the	
   judgment	
   rendered	
   by	
   Madam	
   Justice	
   Pepall	
   reiterates	
   the	
   test	
   as	
   to	
   when	
   a	
   sale	
   will	
   be	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   340 	
  Huff,	
  supra	
  note	
  241	
  at	
  11.	
  	
  	
   341 	
  Canwest	
  Publishing	
  Inc.,	
  supra	
  note	
  200.	
   	
    93	
    approved	
   under	
   section	
   36	
   of	
   CCAA,	
   highlighting	
   the	
   requirement	
   that	
   the	
   sales	
   process	
  be	
  reasonable	
  and	
  fair.342	
  	
   Although	
  the	
  court	
  in	
  Canwest,	
  looked	
  at	
  several	
   factors	
  regarding	
  what	
  constitutes	
  fair	
  and	
  reasonable,	
  concern	
  remains	
  for	
  undue	
   influence	
   to	
   be	
   exerted	
   by	
   secured	
   creditors	
   on	
   the	
   unfortunate	
   debtors.	
   	
   As	
   such,	
   there	
   is	
   some	
   speculation	
   that	
   the	
   court	
   appointed	
   monitor	
   should	
   take	
   a	
   more	
   active	
  role	
  in	
  ensuring	
  the	
  integrity	
  of	
  the	
  sales	
  process.343 	
   	
  	
  	
   7.5	
  Legislation	
  as	
  a	
  Tool?	
  	
   Given	
   that	
   credit	
   bidding	
   is	
   not	
   established	
   as	
   a	
   common	
   law	
   right	
   nor	
   statutory	
   right	
  in	
  Canada,	
  the	
  question	
  then	
  turns	
  on	
  which	
  is	
  the	
  preferable	
  medium	
  in	
  which	
   to	
   encase	
   credit	
   bidding	
   as	
   a	
   right:	
   common	
   law	
   or	
   legislation?	
   	
   The	
   differences	
   between	
   common	
   law	
   and	
   statutory	
   law	
   are	
   vast.	
   	
   One	
   is	
   largely	
   based	
   on	
   a	
   conceptual	
   understanding	
   while	
   the	
   other	
   is	
   based	
   on	
   textual	
   interpretation.344	
  	
   Neither	
  system	
  is	
  perfect.	
  	
  Doctrines	
  in	
  common	
  law	
  take	
  shape	
  as	
  cases	
  mold	
  and	
   tailor	
  principles	
  to	
  suit	
  the	
  problem	
  at	
  hand.	
  	
  While	
  the	
  underlying	
  meaning	
  of	
  the	
   doctrine	
   may	
   remain	
   firm,	
   the	
   ability	
   for	
   each	
   judge	
   to	
   re-­‐state	
   and	
   refine	
   the	
   principle	
  undoubtably	
  makes	
  common	
  law	
  more	
  fluid	
  in	
  nature.	
  	
  	
   	
   While	
   the	
   courts	
   have	
   statutory	
   authority	
   to	
   fill	
   in	
   the	
   gaps	
   of	
   legislation,	
   this	
   discretion	
   is	
   not	
   as	
   flexible	
   as	
   in	
   common	
   law	
   due	
   to	
   limitations	
   imposed	
   by	
   the	
   statute	
  itself.	
  	
  From	
  the	
  text,	
  judges	
  are	
  required	
  to	
  interpret	
  the	
  legislation	
  and	
  then	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   342 	
  Canwest,	
  supra	
  note	
  232	
  at	
  para	
  13.	
   343 	
  Huff,	
  supra	
  note	
  241	
  at	
  11.	
  	
  	
  	
   344 	
  Richard	
  A.	
  Posner,	
  The	
  Problems	
  of	
  Jurisprudence	
  (Cambridge,	
  Massachusetts:	
  Harvard	
  University	
   Press,	
  1990)	
  at	
  247.	
  	
   	
    94	
    apply	
   the	
   understood	
   concept	
   to	
   the	
   case.	
   	
   The	
   interpretative	
   element	
   adds	
   an	
   additional	
  step	
  not	
  seen	
  in	
  the	
  application	
  of	
  common	
  law	
  doctrines.	
  	
  For	
  instance,	
   in	
  deciding	
  if	
  a	
  “case	
  has	
  been	
  decided	
  correctly	
  the	
  observer	
  must	
  consider	
  not	
  only	
   whether	
  the	
  judge	
  properly	
  understood	
  and	
  applied	
  the	
  relevant	
  concepts	
  but	
  also	
   whether	
   those	
   concepts	
   are	
   justifiable	
   interpretations	
   of	
   the..statute.”  345	
  	
    Misinterpretation	
   of	
   legislation	
   is	
   a	
   familiar	
   quandary	
   faced	
   by	
   the	
   courts.	
   	
   The	
   previously	
   discussed	
   US	
   cases	
   of	
   In	
  re	
  Philadelphia	
  Newspapers,	
  LLC	
   and	
   In	
  re	
  Pacific	
   Lumber	
  Co.,	
  which	
  are	
  regarded	
  by	
  scholars	
  as	
  a	
  misinterpretation	
  of	
  the	
  statute,346	
   clearly	
   demonstrate	
   the	
   difficulties	
   the	
   courts	
   are	
   confronted	
   with	
   in	
   interpreting	
   legislation	
   and	
   the	
   resulting	
   complications	
   from	
   misinterpretation.	
   	
   The	
   potential	
   for	
   misinterpretation	
   adds	
   another	
   factor	
   to	
   be	
   considered	
   when	
   proposing	
   legislation.	
   	
   However,	
  where	
  the	
  common	
  law	
  is	
  unclear	
  or	
  insufficient	
  to	
  provide	
  guidance	
  on	
   certain	
   issues,	
   there	
   is	
   little	
   alternative	
   other	
   than	
   enacting	
   legislation.	
   	
   Credit	
   bidding	
  could	
  be	
  said	
  to	
  have	
  a	
  “foot	
  in	
  the	
  door”	
  with	
  respect	
  to	
  Canada’s	
  current	
   insolvency	
   regime,	
   but	
   how	
   does	
   credit	
   bidding	
   go	
   from	
   being	
   a	
   merely	
   allowable	
   option,	
  generally	
  permitted	
  via	
  court	
  approval,	
  to	
  becoming	
  a	
  wholly	
  solidified	
  right	
   without	
   explicit	
   legislation?	
   	
   According	
   to	
   Eisenberg,	
   there	
   are	
   “four	
   foundational	
   principles	
  that	
   govern	
   the	
   manner	
   in	
   which	
   law	
   is	
   established	
   and	
   changed	
   by	
   the	
   courts.”347	
  	
   The	
  first	
  principle,	
  objectivity,	
  requires	
  the	
  courts	
  to	
  establish	
  universal	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   345 	
  Ibid	
  at	
  248-­‐249.	
  	
   346 	
  Supra	
  note	
  140.	
   347 	
  Eisenberg,	
  supra	
  note	
  5	
  at	
  8.	
  	
   	
    95	
    rules	
   that	
   can	
   be	
   applied	
   similarly	
   to	
   parties	
   in	
   the	
   future	
   and	
   not	
   just	
   to	
   those	
   involved	
   in	
   the	
   immediate	
   dispute	
   while	
   the	
   courts	
   maintains	
   an	
   element	
   of	
   impartiality	
   towards	
   the	
   parties.348	
  	
   Furthermore,	
   these	
   universal	
   rules	
   developed	
   by	
   the	
   courts	
   must	
   be	
   “supported	
   by	
   the	
   general	
   standards	
   of	
   the	
   society.”349	
  	
   It	
   is	
   also	
   of	
   critical	
   importance	
   that	
   the	
   courts’	
   decisions	
   and	
   reasoning	
   should	
   be	
   replicable	
   so	
   as	
   to	
   provide	
   certainty	
   and	
   predictability	
   in	
   legal	
   matters.350 	
  	
   Finally,	
   and	
  perhaps	
  most	
  importantly	
  for	
  the	
  purpose	
  of	
  this	
  thesis,	
  is	
  the	
  requirement	
  that	
   the	
  courts	
  “are	
  obliged	
  to	
  be	
  responsive	
  to	
  what	
  the	
  [legal]	
  profession	
  has	
  to	
  say.”351	
  	
   The	
  courts	
  interact	
  with	
  the	
  legal	
  profession	
  through	
  cases	
  argued	
  before	
  the	
  court	
   and	
   through	
   legal	
   commentary	
   provided	
   in	
   the	
   way	
   of	
   law	
   reviews,	
   opinions	
   from	
   sister	
  courts	
  and	
  conferences,	
  to	
  name	
  a	
  few.352	
  	
  	
   	
   The	
   ability	
   to	
   use	
   credit	
   bidding	
   at	
   an	
   asset	
   sale	
   under	
   Canadian	
   insolvency	
   legislation	
  has	
  been	
  affirmed	
  by	
  the	
  courts,	
  but	
  whether	
  a	
  secured	
  creditor	
  can	
  rely	
   on	
  credit	
  bidding,	
  as	
  an	
  implied	
  right,	
  is	
  still	
  uncertain.	
  	
  Furthermore,	
  there	
  is	
  very	
   little	
  literature	
  in	
  Canada	
  discussing	
  the	
  merits	
  of	
  making	
  credit	
  bidding	
  a	
  right.353	
  	
   Hence,	
   it	
   would	
   appear	
   as	
   if	
   credit	
   bidding	
   has	
   only	
   taken	
   marginal	
   steps	
   towards	
   becoming	
  a	
  common	
  law	
  right	
  in	
  reference	
  to	
  Eisenberg’s	
  four	
  principles.	
  	
  	
  	
   	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   348 	
  Eisenberg,	
  supra	
  note	
  5	
  at	
  8-­‐9.	
   349 	
  Eisenberg,	
  supra	
  note	
  5	
  at	
  9.	
  	
   350 	
  Eisenberg,	
  supra	
  note	
  5	
  at	
  10-­‐11.	
   351 	
  Eisenberg,	
  supra	
  note	
  5	
  at	
  12.	
  	
   352 	
  Eisenberg,	
  supra	
  note	
  5	
  at	
  12-­‐13.	
  	
   353 	
  See	
  Janis	
  Sarra,	
  “Manoeuvring	
  through	
  the	
  Insolvency	
  Maze	
  –	
  Shifting	
  Stakeholder	
  Identities	
  and	
   Implications	
  for	
  CCAA	
  Restructurings”	
  (2011)	
  27:1	
  BFLR	
  155	
  at	
  174-­‐175	
  (discussing	
  whether	
  credit	
   bidding	
  should	
  be	
  legislated).	
  	
    	
    96	
    Legislation,	
   alternatively,	
   is	
   no	
   “quick	
   fix”	
   either.	
   	
   Amending	
   legislation	
   is	
   time	
   consuming	
   but	
   the	
   benefits	
   of	
   incorporating	
   credit	
   bidding	
   into	
   statute	
   are	
   readily	
   identifiable,	
   the	
   predominant	
   advantage	
   being	
   that	
   it	
   provides	
   secured	
   lenders	
   with	
   an	
   additional	
   means	
   of	
   protecting	
   their	
   collaterals’	
   value.	
   	
   Legislation	
   can	
   also	
   provide	
   the	
   courts	
   guidance	
   when	
   dealing	
   with	
   issues	
   that	
   arise	
   from	
   lender	
   syndicates,	
  credit	
  bidding	
  valuations	
  and	
  addressing	
  the	
  overall	
  integrity	
  of	
  the	
  sales	
   process	
  when	
  credit	
  bidding	
  is	
  used.	
  	
  	
   	
   The	
   right	
   to	
   credit	
   bid	
   should	
   not	
   be	
   limited	
   to	
   those	
   secured	
   creditors	
   savvy	
   enough	
   to	
   include	
   credit	
   bidding	
   in	
   security	
   and	
   loan	
   agreements,	
   but	
   should	
   instead	
  be	
  extended	
  to	
  all	
  secured	
  creditors	
  through	
  explicit	
  legislation.	
  	
  However,	
   legislation,	
   as	
   detailed	
   earlier	
   in	
   this	
   thesis,	
   has	
   its	
   drawbacks.	
   	
   It	
   adds	
   additional	
   requirements	
   that	
   the	
   court	
   must	
   take	
   into	
   account	
   during	
   an	
   insolvency	
   proceeding.	
  	
  	
   	
   Another	
   argument	
   that	
   can	
   be	
   made	
   against	
   legislation	
   is	
   its	
   potential	
   to	
   be	
   misconstrued.	
   	
   This	
   is	
   an	
   inherent	
   risk	
   in	
   any	
   legislation	
   and	
   relying	
   on	
   such	
   an	
   argument	
   would	
   have	
   a	
   preposterous	
   result.	
   	
   Arguably,	
   the	
   Canadian	
   insolvency	
   regime,	
   which	
   includes	
   both	
   tests	
   to	
   be	
   applied	
   from	
   common	
   law	
   and	
   statute,	
   would	
  prevent	
  the	
  same	
  unfortunate	
  mishap	
  as	
  seen	
  in	
  the	
  US	
  in	
  In	
   re	
   Philadelphia	
   Newspapers,	
  LLC	
  and	
  In	
  re	
  Pacific	
  Lumber	
  Co.	
  	
  By	
  using	
  the	
  criteria	
  laid	
  out	
  in	
  Nortel	
   Networks	
   and	
   Royal	
   Bank	
   v.	
   Soundair	
   Corp.,	
   the	
   courts	
   would	
   have	
   discretion	
   to	
   approve	
  plans	
  and	
  asset	
  sales	
  that	
  meet	
  the	
  goals	
  of	
  the	
  act.	
  	
  Enacting	
  credit	
  bidding	
    	
    97	
    not	
   only	
   brings	
   Canada	
   more	
   in	
   line	
   with	
   US	
   legislation,	
   but	
   it	
   also	
   provides	
   some	
   clarity	
   for	
   secured	
   creditors	
   and	
   security	
   in	
   knowing	
   that	
   they	
   have	
   an	
   additional	
   option	
  available	
  to	
  them	
  in	
  the	
  case	
  of	
  a	
  default.	
  	
  This	
  extra	
  right	
  might	
  also	
  free	
  up	
   additional	
  credit	
  or	
  encourage	
  more	
  lenders	
  to	
  more	
  willingly	
  extend	
  credit.	
  	
  While	
   the	
   potential	
   positive	
   attributes	
   that	
   credit	
   bidding	
   might	
   have	
   on	
   the	
   financial	
   economy	
  in	
  Canada	
  would	
  be	
  mere	
  speculation,	
  the	
  impact	
  on	
  secured	
  creditors	
  is	
   real.	
   	
   As	
   such,	
   legislation	
   of	
   credit	
   bidding	
   should	
   be	
   the	
   next	
   step	
   taken	
   in	
   Canada’s	
   ever-­‐evolving	
  insolvency	
  regime.	
  	
  	
  	
   	
   7.6	
  Proposed	
  Amendments	
  to	
  the	
  BIA	
  and	
  the	
  CCAA	
   To	
   maintain	
   harmony	
   with	
   the	
   US	
   legislation	
   and	
   to	
   facilitate	
   cross-­‐border	
   insolvency	
  proceedings,	
  any	
  proposed	
  amendments	
  to	
  the	
  BIA	
  and	
  CCAA,	
  in	
  respect	
   to	
   credit	
   bidding,	
   should	
   mirror	
   the	
   US	
   §	
   363(k).	
   	
   The	
   US	
   Congress	
   found	
   it	
   fit	
   to	
   insert	
   an	
   “unless	
   the	
   court	
   for	
   cause	
   orders	
   otherwise”	
   clause	
   as	
   an	
   escape	
   hatch.354	
  	
   While	
  this	
  does	
  not	
  preclude	
  Canada	
  from	
  following	
  a	
  different	
  path,	
  the	
  US	
  case	
  law	
   is	
   persuasive	
   in	
   determining	
   that	
   Canada	
   should	
   also	
   have	
   a	
   backdoor	
   option	
   if	
   it	
   were	
  to	
  legislate	
  credit	
  bidding.	
  	
   	
   Arguments	
   against	
   credit	
   bidding,	
   including	
   the	
   potential	
   chilling	
   of	
   the	
   bidding	
   process	
   and	
   the	
   potential	
   undermining	
   of	
   the	
   integrity	
   of	
   the	
   sales	
   process,	
   might	
   suggest	
   that	
   more	
   specific	
   legislation	
   delineating	
   limitations	
   to	
   credit	
   bidding	
   is	
   required.	
   	
   However,	
   the	
   Nortel	
   criteria	
   and	
   Royal	
   Bank	
   v.	
   Soundair	
   Corp.	
   largely	
   	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
   354 	
  Supra	
  note	
  52.	
   	
    98	
    ensure	
   that	
   the	
   sales	
   process	
   is	
   fair	
   and	
   just	
   in	
   light	
   of	
   the	
   given	
   circumstances.	
  	
   Arguably,	
  any	
  specific	
  legislation	
  as	
  to	
  the	
  operation	
  of	
  credit	
  bidding	
  could	
  stifle	
  the	
   flexible	
   nature	
   of	
   the	
   CCAA	
   or	
   restrict	
   its	
   application	
   in	
   terms	
   of	
   the	
   BIA.	
   	
   Both	
   statutes	
   have	
   endowed	
   the	
   courts	
   with	
   judicial	
   discretion	
   and,	
   when	
   coupled	
   with	
   a	
   review	
   by	
   the	
   court	
   appointed	
   monitor,	
   this	
   discretion	
   serves	
   as	
   a	
   check-­‐and-­‐ balance	
   mechanism	
   that	
   need	
   not	
   be	
   duplicated	
   in	
   explicit	
   statutory	
   language.	
  	
   Furthermore,	
   the	
   “unless	
   the	
   court	
   for	
   cause	
   orders	
   otherwise”	
   clause	
   permits	
   the	
   courts	
   to	
   continuing	
   using	
   their	
   judicial	
   discretion	
   in	
   determining	
   whether	
   credit	
   bidding	
  is	
  fair	
  in	
  the	
  given	
  circumstances.	
  	
  	
   	
   It	
   could	
   be	
   viewed	
   that	
   enacting	
   a	
   provision	
   that	
   entitles	
   the	
   courts	
   to	
   continue	
   using	
   judicial	
   discretion	
   to	
   determine	
   whether	
   credit	
   bidding	
   is	
   allowable	
   defeats	
   the	
   purpose	
   of	
   embedding	
   credit	
   bidding	
   in	
   legislation	
   to	
   begin	
   with.	
   	
   However,	
   this	
   argument	
  overlooks	
  the	
  fact	
  that	
  legislated	
  credit	
  bidding	
  would	
  now	
  be	
  an	
  explicit	
   right	
   as	
   provided	
   for	
   by	
   legislation	
   with	
   the	
   courts	
   subsequently	
   having	
   to	
   be	
   furnished	
   with	
   evidence	
   as	
   to	
   why	
   this	
   right	
   should	
   be	
   denied	
   rather	
   than	
   the	
   current	
  system,	
  where	
  parties	
  argue	
  as	
  to	
  why	
  credit	
  bidding	
  should	
  be	
  allowed.	
  	
  	
  	
  	
   	
   Accordingly,	
   the	
   proposed	
   credit	
   bidding	
   section	
   would	
   read	
   very	
   similar	
   to	
   §	
   363(k):	
   At	
   a	
   sale	
   under	
   [section	
   36	
   of	
   the	
   CCAA	
   or	
   section	
   65.13	
   of	
   the	
   BIA]	
   of	
   property	
  that	
  is	
  subject	
  to	
  a	
  lien	
  that	
  secures	
  an	
  allowed	
  claim,	
  unless	
  the	
   court	
  for	
  cause	
  orders	
  otherwise	
  the	
  holder	
  of	
  such	
  claim	
  may	
  bid	
  at	
  such	
   sale,	
   and,	
   if	
   the	
   holder	
   of	
   such	
   claim	
   purchases	
   such	
   property,	
   such	
   holder	
  may	
  offset	
  such	
  claim	
  against	
  the	
  purchase	
  price	
  of	
  such	
  property.	
   	
   	
    99	
    Under	
   plans	
   of	
   reorganization,	
   the	
   US	
   code	
   lists	
   three	
   alternatives	
   that	
   must	
   be	
   adhered	
   to	
   in	
   respect	
   to	
   cramdown	
   plans.	
   	
   The	
   CCAA	
  has	
   no	
   cramdown	
   contingency	
   in	
   the	
   event	
   that	
   there	
   is	
   a	
   dissenting	
   class.	
   	
   Hence,	
   the	
   issues	
   surrounding	
   the	
   “indubitable	
   equivalent”	
   under	
   §	
   1129(b)(2)(A)	
   is	
   not	
   necessarily	
   relevant	
   to	
   proposed	
   amendments.	
   	
   That	
   being	
   said,	
   if	
   the	
   legislature	
   pursues	
   amending	
   the	
   statute	
   to	
   incorporate	
   “cram	
   down”	
   plans	
   in	
   the	
   future,	
   the	
   “indubitable	
   equivalent”	
   component	
  is	
  an	
  unneeded	
  complication	
  which	
  should	
  be	
  omitted.	
  	
  The	
  insolvency	
   legislation	
   in	
   both	
   the	
   US	
   and	
   Canada	
   aims	
   to	
   protect	
   secured	
   creditors’	
   rights.	
  	
   However,	
   Canada’s	
   supplementation	
   of	
   insolvency	
   legislation	
   with	
   common	
   law	
   tests	
  alleviates	
  the	
  requirement	
  of	
  including	
  a	
  general	
  “catchall”	
  provision,	
  the	
  same	
   provision	
   that	
   enables	
   the	
   US	
   courts	
   to	
   approve	
   alternative	
   plans.	
   	
   Instead,	
   the	
   Canadian	
   courts	
   are	
   already	
   endowed	
   with	
   the	
   flexibility	
   needed	
   to	
   approve	
   unique	
   plans	
  not	
  previously	
  considered	
  by	
  the	
  legislature	
  and	
  subsequently	
  included	
  in	
  US	
   legislation.	
  	
  	
  	
  	
   	
   	
   	
   	
   	
   	
   	
    	
    100	
    CHAPTER	
  8:	
  CONCLUSION	
  	
   The	
  ability	
  of	
  secured	
  creditors	
  to	
  credit	
  bid	
  their	
  claim	
  against	
  the	
  collateral	
  at	
  an	
   asset	
   sale	
   underscores	
   an	
   important	
   concern	
   addressed	
   by	
   the	
   US	
   legislature,	
   the	
   undervaluation	
   of	
   collateral.	
   	
   Following	
   its	
   incorporation	
   into	
   the	
   US	
   Bankruptcy	
   Code,	
   secured	
   creditors	
   had	
   enjoyed	
   the	
   security	
   of	
   knowing	
   that	
   should	
   a	
   debtor	
   default,	
  the	
  secured	
  creditors	
  had	
  the	
  right	
  to	
  credit	
  bid	
  their	
  secured	
  claim	
  on	
  the	
   collateral	
   should	
   other	
   bidders	
   submit	
   “lowball”	
   offers	
   or	
   if	
   the	
   collateral	
   suffered	
   from	
   market	
   fluctuations.	
   	
   This	
   right	
   could	
   be	
   invoked	
   in	
   one	
   of	
   two	
   ways,	
   at	
   an	
   asset	
   sale	
   of	
   the	
   debtor’s	
   estate	
   or	
   under	
   a	
   plan	
   of	
   reorganization	
   whereby	
   the	
   debtor	
  attempted	
  a	
  “cramdown”	
  over	
  the	
  dissenting	
  creditors.	
  	
  	
   	
   Although	
  credit	
  bidding	
  had	
  maintained	
  a	
  relatively	
  stable	
  existence	
  in	
  US	
  case	
  law,	
   In	
   re	
   Philadelphia	
   Newspapers,	
   LLC	
   and	
   In	
   re	
   Pacific	
   Lumber	
   Co.	
   upset	
   the	
   predominant	
   interpretation	
   of	
   the	
   statute	
   and	
   essentially	
   allowed	
   the	
   debtors	
   to	
   bypass	
   the	
   secured	
   creditors’	
   right	
   to	
   credit	
   bid	
   through	
   the	
   use	
   of	
   the	
   “catchall”	
   indubitable	
   equivalent	
   subsection.	
   	
   The	
   US	
   Supreme	
   Court	
   righted	
   the	
   wrong	
   in	
   RedLAX	
  returning	
  credit	
  bidding	
  to	
  its	
  prior	
  status	
  as	
  a	
  secured	
  creditor’s	
  right.	
  	
  	
   	
   While	
   cramdown	
   plans	
   are	
   not	
   embodied	
   in	
   Canadian	
   insolvency	
   legislation,	
   the	
   above	
   US	
   case	
   discussion	
   has	
   highlighted	
   several	
   interesting	
   points	
   regarding	
   credit	
   bidding,	
   first	
   and	
   foremost	
   being	
   the	
   merits	
   and	
   reasons	
   behind	
   encasing	
   credit	
   bidding	
   in	
   legislation.	
   	
   Of	
   note,	
   also,	
   is	
   the	
   US	
   courts’	
   approach	
   to	
   resolving	
   issues	
   such	
   as	
   valuation	
   of	
   credit	
   bids,	
   the	
   potential	
   of	
   chilling	
   and	
   lender	
   syndicate	
    	
    101	
    consent.	
   	
   Additionally,	
   while	
   this	
   thesis	
   advocates	
   for	
   legislation	
   of	
   credit	
   bidding,	
   the	
  recent	
  US	
  cases	
  also	
  illustrate	
  the	
  potential	
  for	
  misinterpretation	
  of	
  legislation.	
  	
  	
   	
   While	
   White	
   Birch	
   and	
   Canwest	
   have	
   solidified	
   the	
   use	
   credit	
   bidding	
   in	
   Canadian	
   insolvency	
   proceedings,	
   there	
   are	
   several	
   issues	
   that	
   have	
   yet	
   to	
   be	
   addressed	
   including	
   implications	
   that	
   credit	
   bidding	
   might	
   have	
   on	
   the	
   integrity	
   of	
   an	
   asset	
   sale	
   under	
   the	
   CCAA.	
   	
   Proper	
   legislation	
   of	
   credit	
   bidding	
   in	
   Canada,	
   which	
   can	
   alleviate	
   some	
   of	
   these	
   issues	
   in	
   conjunction	
   with	
   the	
   statutory	
   tests	
   already	
   established	
   by	
   the	
   courts	
   in	
   Nortel	
  and	
   Royal	
  Bank	
  v.	
  Soundair	
  Corp.,	
   is	
   the	
   logical	
   next	
  step.	
  	
  Credit	
  bidding	
  has	
  had	
  a	
  tumultuous	
  journey	
  in	
  recent	
  years,	
  having	
  been	
   subject	
  to	
  misinterpretation	
  in	
  the	
  US	
  courts	
  to	
  being	
  imported	
  into	
  Canada	
  through	
   cross-­‐border	
  insolvency	
  proceedings.	
  	
  Arguably,	
  its	
  journey	
  is	
  far	
  from	
  over	
  as	
  the	
   Canadian	
  courts	
  continue	
  to	
  grapple	
  with	
  its	
  presence.	
   	
   	
   	
   	
   	
   	
   	
   	
   	
   	
    	
    102	
    BIBLIOGRAPHY	
   	
   Legislation	
   11	
  USC	
  (2012).	
   	
   11	
  USC	
  (Supp	
  1935).	
   	
   An	
  Act	
  to	
  amend	
  the	
  Bankruptcy	
  and	
  Insolvency	
  Act,	
  the	
  Companies’	
  Creditors	
   Arrangement	
  Act,	
  the	
  Wage	
  Earner	
  Protection	
  Program	
  Act	
  and	
  chapter	
  47	
  of	
   the	
  Statutes	
  of	
  Canada,	
  2005,	
  SC	
  2007,	
  c	
  36.	
   	
   Bankruptcy	
  and	
  Insolvency	
  Act,	
  RSC	
  1985,	
  c.	
  B-­‐3.	
   	
   Code	
  of	
  Civil	
  Procedure,	
  arts	
  689,	
  730	
  CCP.	
  	
   	
   Companies’	
  Creditors	
  Arrangement	
  Act,	
  RSC	
  1985,	
  c.	
  C-­‐36.	
   	
   Farm	
  Debt	
  Mediation	
  Act,	
  SC	
  1997,	
  c	
  21.	
   	
   Personal	
  Property	
  Security	
  Act,	
  RSA	
  2000,	
  c	
  P-­‐7.	
   	
   Personal	
  Property	
  Security	
  Act,	
  RSBC	
  1996,	
  c	
  359.	
   	
   Personal	
  Property	
  Security	
  Act,	
  RSO	
  1990,	
  c	
  P.10.	
   	
   Personal	
  Property	
  Security	
  Act,	
  RSPEI	
  1988,	
  c	
  P-­‐3.1.	
   	
   Personal	
  Property	
  Security	
  Act,	
  RSY	
  2002,	
  c	
  169.	
   	
   Personal	
  Property	
  Security	
  Act,	
  SNB	
  1993,	
  c	
  P-­‐7.1.	
   	
   Personal	
  Property	
  Security	
  Act,	
  SNL	
  1998,	
  c	
  P-­‐7.1.	
   	
   Personal	
  Property	
  Security	
  Act,	
  SNS	
  1995-­‐96,	
  c	
  13.	
   	
   Personal	
  Property	
  Security	
  Act,	
  SNWT	
  1994,	
  c	
  8.	
   	
   Pub	
  L	
  No	
  95-­‐598,	
  92	
  Stat	
  2549	
  (1978).	
   	
   Quebec;	
  See	
  Civil	
  Code	
  of	
  Quebec,	
  SQ	
  1991,	
  c	
  64.	
   	
   The	
  Personal	
  Property	
  Security	
  Act,	
  SM	
  1993,	
  c	
  14.	
   	
   The	
  Personal	
  Property	
  Security	
  Act,	
  1993,	
  SS	
  1993,	
  c	
  P-­‐6.2.	
   	
    103	
    	
   UCC	
  (2004).	
   	
   US,	
  Bill	
  S	
  2266,	
  95th	
  Cong,	
  1977.	
   	
   Winding-­‐up	
  and	
  Restructuring	
  Act,	
  RSC	
  1985,	
  c	
  W-­‐11.	
   	
   	
   	
   Jurisprudence	
   AbitibiBowater	
  inc.	
  (Arrangement	
  relatif	
  à),	
  2010	
  QCCS	
  4450,	
  [2010]	
  QJ	
  No	
  9504.	
   	
   AbitibiBowater	
  Inc.,	
  Re,	
  2012	
  SCC	
  67,	
  221	
  ACWS	
  (3d)	
  264.	
   	
   Abramyk	
  v	
  Abramyk,	
  2000	
  SKQB	
  473	
  at	
  para	
  14,	
  [2000]	
  SJ	
  No	
  705.	
   	
   Arnco	
  Business	
  Services	
  Ltd.	
  (Re),	
  [1983]	
  OJ	
  No	
  974	
  at	
  para	
  4,	
  49	
  CBR	
  (NS)	
  188	
  (ON	
  H	
   Ct	
  J).	
   	
   Aveos	
  Fleet	
  Performance	
  Inc./	
  Aveos	
  performance	
  aeronautique	
  inc.,	
  Re,	
  2012	
  QCCS	
   4074,	
  [2012]	
  QJ	
  No	
  18503.	
   	
   Bank	
  of	
  America	
  National	
  Trust	
  &	
  Savings	
  Association	
  v	
  203	
  N.	
  LaSalle	
  Street	
   Partnership,	
  526	
  US	
  434	
  (1998).	
  	
   	
   Brainhunter	
  Inc.,	
  Re,	
  [2009]	
  OJ	
  No	
  5578,	
  62	
  CBR	
  (5th)	
  41.	
   	
   Brainhunter,	
  Inc.,	
  Re,	
  2010	
  ONSC	
  1035,	
  70	
  BLR	
  (4th)	
  123.	
   	
   Canadian	
  Airlines	
  Corp.,	
  Re,	
  2000	
  ABQB	
  442,	
  [2000]	
  AWLD	
  654.	
   	
   Canadian	
  Red	
  Cross	
  Society	
  (Re),	
  [1998]	
  OJ	
  No	
  3306,	
  5	
  CBR	
  (4th)	
  299.	
   	
   Canrock	
  Ventures	
  LLC	
  v	
  Ambercore	
  Software	
  Inc.,	
  2011	
  ONSC	
  1138,	
  [2011]	
  OJ	
  No	
   729.	
   	
   Canrock	
  Ventures	
  LLC	
  v	
  Amerbcore	
  Software	
  Inc.,	
  2011	
  ONSC	
  2308,	
  [2011]	
  OJ	
  No	
   1705.	
   	
   Canwest	
  Publishing	
  Inc.	
  (Re),	
  2010	
  ONSC	
  222,	
  [2010]	
  OJ	
  No	
  188.	
   	
   Canwest	
  Publishing	
  Inc.	
  (Re),	
  2010	
  ONSC	
  2870,	
  [2010]	
  OJ	
  No	
  2190.	
   	
   CCM	
  Master	
  Qualified	
  Fund	
  Ltd.	
  v	
  blutip	
  Power	
  Technologies	
  Ltd.,	
  2012	
  ONSC	
  1750,	
   90	
  CBR	
  (5th)	
  74.	
   	
    104	
    	
   Century	
  Services	
  Inc.	
  v	
  Canada	
  (Attorney	
  General),	
  2010	
  SCC	
  60,	
  [2010]	
  3	
  SCR	
  379.	
   	
   Chef	
  Ready	
  Foods,	
  Ltd.	
  v	
  Hongkong	
  Bank	
  of	
  Canada,	
  [1990]	
  BCJ	
  No	
  2384,	
  51	
  BCLR	
   (2d)	
  84	
  (BCCA).	
   	
   Cie	
  Montreal	
  Trust	
  c	
  Jori	
  Investments	
  Inc.,	
  JE	
  80-­‐220,	
  1980	
  CarswellQue	
  85	
  (Qc	
  Sup	
   Ct).	
   	
   Clothing	
  for	
  Modern	
  Times	
  Ltd.,	
  Re,	
  2011	
  ONSC	
  7522,	
  88	
  CBR	
  (5th)	
  329.	
   	
   Cohen	
  v	
  KB	
  Mezzanine	
  Fund	
  II,	
  LP	
  (In	
  re	
  Submicron	
  Systems	
  Corporation),	
  291	
  BR	
  314	
   (Bankr	
  D	
  Del	
  2003).	
   	
   Cohen	
  v	
  KB	
  Mezzanine	
  Fund	
  II,	
  LP	
  (In	
  re	
  SubMicron	
  Systems	
  Corporation),	
  432	
  F	
  3d	
   448	
  at	
  459	
  (3d	
  Cir	
  2006).	
   	
   Commodity	
  Futures	
  Trading	
  Commission	
  v	
  Weintraub	
  et	
  al.,	
  471	
  US	
  343	
  at	
  352	
   (1985).	
  	
   	
   Connecticut	
  National	
  Bank	
  v	
  Germain,	
  503	
  US	
  249	
  (1992).	
   	
   Cornelison	
  v	
  Kornbluth,	
  15	
  Cal	
  3d	
  590	
  at	
  607	
  (Sup	
  Ct	
  1975).	
   	
   D.	
  Ginsberg	
  &	
  Sons	
  v	
  Popkin,	
  285	
  US	
  204	
  at	
  208	
  (1932).	
   	
   Duncan	
  v	
  Walker,	
  533	
  US	
  167	
  (2001).	
   	
   Eddie	
  Bauer	
  of	
  Canada,	
  Inc.	
  (Re),	
  [2009]	
  OJ	
  No	
  3784,	
  57	
  CBR	
  (5th)	
  241.	
   	
   EugèneMarcouxInc.	
  c	
  Côté,	
  [1990]	
  RJQ	
  1221	
  (Qc	
  CA).	
  	
  	
   	
   Hollinger	
  Inc.,	
  Re,	
  2012	
  ONSC	
  5107,	
  220	
  ACWS	
  (3d)	
  261.	
   	
   Indalex	
  Ltd.,	
  Re,	
  2011	
  ONCA	
  265,	
  75	
  CBR	
  (5th)	
  19.	
   	
   Indalex,	
  Ltd.,	
  Re,	
  2013	
  SCC	
  6,	
  96	
  CBR	
  (5th)	
  171.	
   	
   Kham	
  &	
  Nate’s	
  Shoes	
  No.	
  2,	
  Inc.	
  v	
  First	
  Bank,	
  908	
  F	
  2d	
  1351	
  at	
  1359	
  (7th	
  Cir	
  1990).	
   	
   Laidlaw	
  Inc.,	
  Re,	
  [2002]	
  OJ	
  No	
  947,	
  34	
  CBR	
  (4th)	
  72.	
   	
   In	
  re	
  Atlanta	
  Packaging	
  Products,	
  Inc	
  .,	
  99	
  BR	
  124	
  at	
  131	
  (ND	
  Ga	
  1988).	
   	
   In	
  re	
  Combustion	
  Engineering,	
  Inc.,	
  391	
  F	
  3d	
  190	
  (3d	
  Cir	
  2004).	
   	
   	
    105	
    In	
  re	
  Criimi	
  Mae,	
  Inc.,	
  251	
  BR	
  796	
  at	
  807-­‐808	
  (Bankr	
  D	
  Md	
  2000).	
   	
   In	
  re	
  GWLS	
  Holdings,	
  Inc.,	
  2009	
  Bankr	
  LEXIS	
  378	
  (Bankr	
  D	
  Del).	
   	
   In	
  re	
  Integrated	
  Telecom	
  Express,	
  Inc.,	
  384	
  F	
  3d	
  108	
  at	
  119	
  (3d	
  Cir	
  2004).	
   	
   In	
  re	
  Metaldyne	
  Corp.,	
  409	
  BR	
  671	
  (Bankr	
  SD	
  NY	
  2009).	
  	
  	
   	
   In	
  re	
  Midway	
  Investments,	
  Ltd.,	
  187	
  BR	
  382	
  (Bank	
  SD	
  Fla	
  1995).	
   	
   In	
  re	
  Morgan	
  House	
  General	
  Partnership,	
  1997	
  US	
  Dist	
  LEXIS	
  1306	
  (ED	
  Pa	
  1997).	
   	
   In	
  re	
  Murel	
  Holding	
  Corp.,	
  75	
  F	
  2d	
  941	
  at	
  942	
  (2d	
  Cir	
  1935).	
   	
   In	
  re	
  New	
  River	
  Dry	
  Dock,	
  Inc.,	
  497	
  Fed	
  Appx	
  882	
  (11th	
  Cir	
  2012).	
   	
   In	
  re	
  Pacific	
  Lumber	
  Co.,	
  584	
  F	
  3d	
  229	
  (5th	
  Cir	
  2009).	
   	
   In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  2009	
  Bankr	
  LEXIS	
  3167	
  (Bankr	
  ED	
  Pa	
  2009).	
   	
   In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  418	
  BR	
  548	
  (ED	
  Pa	
  2009).	
   	
   In	
  re	
  Philadelphia	
  Newspapers,	
  LLC,	
  599	
  F	
  3d	
  298	
  at	
  310	
  (3d	
  Cir	
  2010).	
   	
   In	
  re	
  Pine	
  Gate	
  Associates,	
  Ltd.,	
  1976	
  US	
  Dis	
  LEXIS	
  17366	
  (Bankr	
  ND	
  Ga).	
   	
   In	
  re	
  Realty	
  Investments,	
  Ltd.	
  V,	
  72	
  BR	
  143	
  (Bankr	
  CD	
  Cal	
  1987).	
   	
   In	
  re	
  River	
  Road	
  Hotel	
  Partners,	
  LLC,	
  2010	
  Bankr	
  LEXIS	
  5933	
  (Bankr	
  ND	
  Ill	
  2010).	
   	
   In	
  re	
  Sun	
  Country,	
  764	
  F	
  2d	
  406	
  (5th	
  Cir	
  1985).	
   	
   In	
  re	
  Suncruz	
  Casinos,	
  LLC,	
  298	
  BR	
  833	
  at	
  839	
  (Bankr	
  SD	
  Fla	
  2003).	
  	
  	
   	
   In	
  re	
  The	
  Colad	
  Group,	
  Inc.,	
  324	
  BR	
  208	
  at	
  222	
  (Bankr	
  WD	
  NY	
  2005).	
  	
  	
   	
   Ivaco	
  Inc.	
  (Re),	
  [2006]	
  OJ	
  No	
  4152	
  at	
  para	
  3,	
  83	
  OR	
  (3d)	
  108	
  (ONCA).	
   	
   Lehndorff	
  General	
  Partner	
  Ltd.	
  (Re),	
  [1993]	
  OJ	
  No	
  14,	
  17	
  CBR	
  (3d)	
  24.	
   	
   Maax	
  Corp.,	
  Re,	
  2008	
  CarswellQue	
  15021	
  (Qc	
  Sup	
  Ct).	
  	
   	
   Market	
  Co.	
  v	
  Hoffman,	
  101	
  US	
  112	
  at	
  115-­‐116	
  (1879).	
   	
   Morales	
  v	
  Trans	
  World	
  Airlines,	
  Inc.,	
  504	
  US	
  374	
  at	
  384	
  (1992).	
   	
   	
    106	
    Nortel	
  Networks	
  Corp.,	
  Re,	
  [2009]	
  OJ	
  	
  No	
  3169,	
  55	
  CBR	
  (5th)	
  229.	
   	
   Nortel	
  Networks	
  Corp.	
  (Re),	
  [2009]	
  OJ	
  No	
  4487,	
  56	
  CBR	
  (5th)	
  224.	
   	
   Old	
  Carco	
  Motors	
  LLC	
  v	
  Suthers	
  (In	
  re	
  Old	
  Carco	
  LLC),	
  470	
  BR	
  688	
  at	
  704	
  (SD	
  NY	
   2012).	
  	
   	
   Parlay	
  Entertainment	
  Inc.,	
  Re,	
  2011	
  ONSC	
  3492,	
  81	
  CBR	
  (5th)	
  58.	
   	
   PCAS	
  Patient	
  Care	
  Automation	
  Services	
  Inc.,	
  Re,	
  2012	
  ONSC	
  2840,	
  94	
  CBR	
  (5th)	
  69.	
   	
   RadLAX	
  Gateway	
  Hotel,	
  LLC	
  v	
  Amalgamated	
  Bank,	
  132	
  US	
  2065	
  (2012).	
   	
   River	
  Road	
  Hotel	
  Partners,	
  LLC	
  v	
  Amalgamated	
  Bank,	
  651	
  F	
  3d	
  642	
  (7th	
  Cir	
  2011).	
   	
   Royal	
  Bank	
  v	
  Soundair	
  Corp.	
  (1991),	
  7	
  CBR	
  (3d)	
  1,	
  4	
  OR	
  (3d)	
  1	
  (Ont	
  CA).	
   	
   Saulnier	
  v	
  Royal	
  Bank	
  of	
  Canada,	
  2008	
  SCC	
  58	
  at	
  para	
  17,	
  [2008]	
  3	
  SCR	
  166.	
   	
   Sino-­‐Forest	
  Corp.,	
  Re,	
  2012	
  ONSC	
  2063,	
  213	
  ACWS	
  (3d)	
  831.	
   	
   Sky	
  Technologies	
  LCC	
  v	
  SAP	
  AG,	
  576	
  F	
  3d	
  1374	
  (Fed	
  Cir	
  2009).	
   	
   TRG	
  Service	
  Inc.	
  (Re),	
  [2006]	
  OJ	
  No	
  4521	
  at	
  para	
  68,	
  26	
  CBR	
  (5th)	
  203.	
   	
   TRW,	
  Inc.	
  v	
  Adelaide	
  Andrews,	
  534	
  US	
  19	
  (2001).	
   	
   United	
  States	
  v	
  Chase,	
  135	
  US	
  255	
  at	
  260	
  (1890).	
   	
   Unsecured	
  Creditors’	
  Committee	
  v	
  Southmark	
  Corp.	
  (In	
  re	
  Robert	
  L.	
  Helms	
  Const.	
  &	
   Dev.	
  Co.),	
  139	
  F	
  3d	
  702	
  at	
  706	
  (9th	
  Cir	
  1998).	
  	
   	
   Varity	
  Corp.	
  v.	
  Howe,	
  561	
  US	
  489	
  (1996).	
   	
   Wade	
  v	
  Bradford,	
  39	
  F	
  3d	
  1126	
  at	
  1130	
  (10th	
  Cir	
  1994).	
   	
   White	
  Birch	
  Paper	
  Holding	
  Company	
  (Arrangement	
  relatif	
  à),	
  2010	
  QCCS	
  4915,	
   [2010]	
  QJ	
  No	
  10469.	
   	
   White	
  Birch	
  Paper	
  Holding	
  Company	
  (Proposition	
  de),	
  2010	
  QCCA	
  1950,	
  [2010]	
  QJ	
  No	
   11089.	
   	
   Wright	
  v	
  Union	
  Central	
  Life	
  Insurance	
  Co.,	
  311	
  US	
  273	
  at	
  278	
  (1940).	
   	
   	
   	
   	
    107	
    Secondary	
  Materials	
   American	
  Law	
  Institute,	
  Transnational	
  Insolvency:	
  Cooperation	
  Among	
  the	
  NAFTA	
   Countries.	
  International	
  Statement	
  of	
  Canadian	
  Bankruptcy	
  Law	
  (Huntington,	
   NY:	
  Juris	
  Publishing,	
  2003).	
   	
   Baird,	
  David	
  E.,	
  Q.C.,	
  Baird’s	
  Practical	
  Guide	
  to	
  the	
  Companies’	
  Creditors	
  Arrangement	
   Act,	
  (Toronto:	
  Carswell,	
  2009).	
   	
   Barney,	
  Joshua,	
  “Chapter	
  11	
  Reorganizations	
  and	
  Credit	
  Bidding:	
  Why	
  the	
  Third	
   Circuit	
  Erred	
  in	
  In	
  re	
  Philadelphia	
  Newspapers,	
  LLC”	
  (2011)	
  10	
  DePaul	
  Bus	
  &	
   Com	
  LJ	
  55.	
   	
   Bennett,	
  Frank,	
  Bennett	
  on	
  Bankruptcy,	
  10th	
  ed	
  (Toronto:	
  CCH	
  Canadian	
  Limited,	
   2008).	
   	
   Bernstein,	
  Donald	
  S.,	
  Brian	
  Resnick	
  &	
  Hilary	
  Dengel,	
  “The	
  Logic	
  and	
  Limits	
  of	
  Credit	
   Bidding	
  by	
  Secured	
  Creditors	
  Under	
  the	
  Bankruptcy	
  Code”	
  (Paper	
  delivered	
  at	
   the	
  Thirty-­‐Seventh	
  Annual	
  Lawrence	
  P.	
  King	
  and	
  Charles	
  Seligson	
  Workshop	
   on	
  Bankruptcy	
  and	
  Business	
  Reorganization,	
  22	
  July	
  2011)	
  online:	
  Social	
   Science	
  Research	
  Network	
   <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1975932>.	
   	
   Blair,	
  Margaret	
  M.,	
  “Financial	
  Innovation,	
  Leverage,	
  Bubbles	
  and	
  the	
  Distribution	
  of	
   Income”	
  (2010-­‐2011)	
  30	
  Rev	
  Banking	
  &	
  Fin	
  L	
  225.	
  	
   	
   Brookner,	
  Jason	
  S.,	
  “Pacific	
  Lumber	
  and	
  Philadelphia	
  Newspapers:	
  The	
  Eradication	
   of	
  a	
  Carefully	
  Constructed	
  Statutory	
  Regime	
  Through	
  Misinterpretation	
  of	
   Section	
  1129(b)(2)(A)	
  of	
  the	
  Bankruptcy	
  Code”	
  (2011)	
  85	
  Am	
  Bank	
  LJ	
  127.	
   	
   Buccola,	
  Vincent	
  S.	
  J.	
  	
  &	
  Ashley	
  C.	
  Keller,	
  “Credit	
  Bidding	
  and	
  the	
  Design	
  of	
   Bankruptcy	
  Auctions”	
  (2010)	
  18	
  Geo	
  Mason	
  L	
  Rev	
  99.	
   	
   Collier,	
  William	
  Miller,	
  Collier	
  on	
  Bankruptcy,	
  15th	
  ed	
  by	
  Lawrence	
  P.	
  King	
  (New	
   York:	
  Matthew	
  Bender,	
  2008).	
   	
   Collier,	
  William	
  Miller,	
  Collier	
  on	
  Bankruptcy,	
  16th	
  ed	
  by	
  Alan	
  N.	
  Resnick	
  &	
  Henry	
  J.	
   Sommer	
  (New	
  Providence,	
  NJ:	
  LexisNexis	
  2009).	
   	
   Duggan,	
  Anthony	
  &	
  Jacob	
  Ziegel,	
  “Special	
  Issue:	
  Education,	
  Administration,	
  and	
   Justice:	
  Essays	
  in	
  Honor	
  of	
  Frank	
  Iacobucci:	
  II.	
  Commercial	
  Law:	
  Justice	
   Iacobucci	
  and	
  the	
  Canadian	
  Law	
  of	
  Deemed	
  Trusts	
  and	
  Chattel	
  Security”	
   (2007)	
  57	
  UTLJ	
  227.	
   	
   Eisenberg,	
  Melvin	
  Aron,	
  The	
  Nature	
  of	
  the	
  Common	
  Law	
  (Cambridge,	
  Massachusetts:	
   Harvard	
  University	
  Press,	
  1988).	
   	
    108	
    	
   Erens,	
  Brad	
  B.	
  	
  &	
  David	
  A.	
  Hall,	
  “Secured	
  Lender	
  Rights	
  in	
  363	
  Sales	
  and	
  Relates	
   Issues	
  of	
  Lender	
  Consent”	
  18	
  Am	
  Bankr	
  Inst	
  L	
  Rev	
  535.	
   	
   Foreign	
  Affairs,	
  Trade	
  and	
  Development	
  Canada,	
  online:	
   <http://www.international.gc.ca/economist-­‐ economiste/assets/pdfs/Data/investments-­‐ investissements/FDI_by_Country/FDI_stocks-­‐Inward_by_Country-­‐ENG.pdf>.	
   	
   Gove,	
  Philip	
  Babcock,	
  ed,	
  Webster’s	
  Third	
  New	
  International	
  Dictionary	
  of	
  the	
  English	
   Language,	
  Unabridged	
  (Springfield,	
  Massachusetts:	
  G	
  &	
  C	
  Merriam	
  Co.,	
  1971).	
   	
   Huff,	
  Pamela	
  et	
  al,	
  “Credit	
  Bidding	
  –	
  Recent	
  Canadian	
  and	
  U.S.	
  Themes”	
  in	
  Janis	
  P.	
   Sarra,	
  ed,	
  Annual	
  Review	
  of	
  Insolvency	
  Law	
  2010	
  (Toronto:	
  Thomson	
  Carswell,	
   2011)	
  1.	
   	
   Jackson,	
  Madam	
  Justice	
  Georgina	
  R.	
  	
  &	
  Dr.	
  Janis	
  Sarra,	
  “Selecting	
  the	
  Judicial	
  Tool	
  to	
   get	
  the	
  Job	
  Done:	
  An	
  Examination	
  of	
  Statutory	
  Interpretation,	
  Discretionary	
   Power	
  and	
  Inherent	
  Jurisdiction	
  in	
  Insolvency	
  Matters”	
  in	
  Janis	
  P.	
  Sarra,	
  ed,	
   Annual	
  Review	
  of	
  Insolvency	
  Law	
  2007	
  (Toronto:	
  Thomson	
  Carswell,	
  2008)	
  41.	
  	
   	
   Keating,	
  Daniel,	
  “RadLAX	
  Revisited:	
  A	
  Routine	
  Case	
  of	
  Statutory	
  Interpretation	
  or	
  a	
   Sub	
  Rose	
  Preservation	
  of	
  Bankruptcy	
  Law’s	
  Great	
  Compromise?”	
  (2012)	
  20	
   Am	
  Bankr	
  Inst	
  L	
  Rev	
  465.	
   	
   Klee,	
  Kenneth	
  N.,	
  “All	
  You	
  Ever	
  Wanted	
  to	
  Know	
  About	
  Cram	
  Down	
  Under	
  the	
  New	
   Bankruptcy	
  Code”	
  (1979)	
  53	
  Am	
  Bankr	
  LJ	
  133.	
   	
   Kling,	
  Jacob	
  A.,	
  “Rethinking	
  363	
  Sales”	
  (2012)	
  17	
  Stan	
  JL	
  Bus	
  &	
  Fin	
  258.	
   	
   Latham,	
  Joe	
  et	
  al,	
  “Credit	
  Bidding	
  in	
  Canada	
  –	
  Recent	
  Developments”	
  (2011)	
  27:1	
   BFLR	
  93.	
   	
   Legal	
  Information	
  Institute,	
  online:	
  <http://www.law.cornell.edu/wex/certiorari>.	
   	
   MacDougall,	
  Bruce,	
  Personal	
  Property	
  Security	
  Law	
  in	
  British	
  Columbia	
  (Markham,	
   Ontario:	
  LexisNexis,	
  2009).	
   	
   Megginson,	
  Leon	
  C.,	
  “Lessons	
  from	
  Europe	
  for	
  American	
  Business”	
  (1963)	
  44:1	
   Southwest	
  Soc	
  Sci	
  Q	
  3.	
   	
   Merriam-­‐Webster,	
  online:	
  Merriam-­‐Webster	
  <http://www.merriam-­‐ webster.com/dictionary/evolution>.	
   	
   Mikhail,	
  Merriam,	
  “Extra!	
  Extra!	
  :	
  Philadelphia	
  Newspaper	
  Jeopardizes	
  Credit	
   Bidding”	
  (2011)	
  28	
  Emory	
  Bankr	
  Dev	
  J	
  135.	
   	
    109	
    	
   Nocilla,	
  Alfonso,	
  “Asset	
  Sales	
  Under	
  the	
  Companies’	
  Creditors	
  Arrangement	
  Act	
  and	
   the	
  Failure	
  of	
  Section	
  36”	
  Can	
  Bus	
  LJ	
  52	
  (2012)	
  226.	
   	
   Posner,	
  Richard	
  A.,	
  The	
  Problems	
  of	
  Jurisprudence	
  (Cambridge,	
  Massachusetts:	
   Harvard	
  University	
  Press,	
  1990).	
   	
   Resnick,	
  Alan	
  N.,	
  “Denying	
  Secured	
  Creditors	
  the	
  Right	
  to	
  Credit	
  Bid	
  in	
  Chapter	
  11	
   Cases	
  and	
  the	
  Risk	
  of	
  Undervaluation”	
  (2012)	
  63	
  Hastings	
  LJ	
  323.	
   	
   Romaine,	
  Madam	
  Justice	
  B.E.,	
  “Reflection	
  on	
  Comity	
  and	
  Sovereignty	
  –	
  Ten	
  Years	
   Later”	
  in	
  Janis	
  P.	
  Sarra,	
  ed,	
  Annual	
  Review	
  of	
  Insolvency	
  Law	
  2012	
  (Toronto:	
   Thomson	
  Carswell,	
  2013)	
  1.	
   	
   Sarra,	
  Janis,	
  “Debtor	
  in	
  Possession	
  Financing:	
  The	
  Jurisdiction	
  of	
  Canadian	
  Courts	
  to	
   Grant	
  Super-­‐Priority	
  Financing	
  in	
  CCAA	
  Applications”	
  (2000)	
  23	
  Dalhousie	
  LJ	
   337.	
   	
   Sarra,	
  Janis,	
  “Manoeuvring	
  through	
  the	
  Insolvency	
  Maze	
  –	
  Shifting	
  Stakeholder	
   Identities	
  and	
  Implications	
  for	
  CCAA	
  Restructurings”	
  (2011)	
  27:1	
  BFLR	
  155.	
   	
   Sarra,	
  Janis,	
  “Reflections	
  on	
  a	
  Decade	
  of	
  Financing	
  Insolvency	
  Restructurings”	
  in	
   Janis	
  P.	
  Sarra,	
  ed,	
  Annual	
  Review	
  of	
  Insolvency	
  Law	
  2012	
  (Toronto:	
  Thomson	
   Carswell,	
  2013)	
  59.	
   	
   Sarra,	
  Janis,	
  Rescue!	
  The	
  Companies’	
  Creditors	
  Arrangement	
  Act	
  (Toronto:	
  Thomson	
   Carswell,	
  2007).	
   	
   Tabb,	
  Charles	
  J.,	
  “Credit	
  Bidding,	
  Security,	
  and	
  the	
  Obsolescence	
  of	
  Chapter	
  11”	
   (2013)	
  U	
  Ill	
  L	
  Rev	
  103.	
   	
   Towriss,	
  Shauna,	
  “Through	
  the	
  Lens	
  of	
  Insolvency:	
  Shareholder	
  Equity	
  in	
  CCAA	
   Restructurings”	
  in	
  Janis	
  P.	
  Sarra,	
  ed	
  Annual	
  Review	
  of	
  Insolvency	
  Law	
  2005	
   (Toronto:	
  Thomson	
  Carswell,	
  2006)	
  527.	
   	
   	
   Government	
  Reports