Tamm

In bankruptcy, it’s the trustee’s job to manage the estate. Often, this means liquidating all the estate’s assets and distributing the proceeds to creditors, shareholders and other interested parties. Some of the proceeds are awarded to the trustee as compensation, which is calculated based on the value of the assets he disburses. We address whether the trustee’s compensation may reflect the value of what is known as a “credit bid.”

FACTS

Hokulani Square, Inc., filed for bankruptcy in May 2007. Bradley Tamm was appointed as the chapter 7 trustee. One of Hokulani’s principal assets was a set of condominiums that exposed the estate to serious liabilities. Recognizing the risks of owning the condominiums, Tamm moved to auction them off. Two groups of secured creditors, both of which had liens on the condominiums, jointly submitted the winning bid at $1.5 million.

To pay, the secured creditors exercised their right to credit bid under 11 U.S.C. § 368 (k). This means that they used the money the estate owed them, rather than cash, in making their bid. In such a transaction, the creditors get the property, and the estate’s debt is reduced by the amount of the bid.

Tamm…