Ninth Circuit Holds That Valuation of Secured Creditor’s Collateral in Chapter 11 Need Not Be Based on Property’s Highest and Best Use

Ninth Circuit Holds That Valuation of Secured Creditor’s Collateral in Chapter 11 Need Not Be Based on Property’s Highest and Best Use

May 31, 2017

Client Alert

Co-author, Brownstein Client Alert, May 31, 2017

On May 26, 2017, an en banc panel of the Ninth Circuit Court of Appeals issued an opinion with important ramifications for secured lenders.  The Ninth Circuit held that for purposes of determining the amount of a secured claim under a Chapter 11 plan, the collateral should be valued based on the debtor’s proposed post-reorganization use of the property, even if the collateral would generate more value in a foreclosure sale.

Under Chapter 11 of the Bankruptcy Code, a debtor can modify payment terms of a secured loan over the objection of a secured creditor (a “cramdown”) if, inter alia, the plan provides that the secured creditor will (i) retain its lien on the collateral, and (ii) receive payments over time with a present value of at least the amount of its secured claim.

To read the alert in full, please click the PDF above. 

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