Selected Chapter 11 Adequate Protection Issues

Eric Ostroff | September 18, 2008

Sections 362, 363, and 364 of the Bankruptcy Code require, in certain instances, that a court determine whether the interests of a secured creditor are adequately protected. While the concept of adequate protection is not defined in the Bankruptcy Code, it is generally accepted that it requires a debtor to propose some form of relief that will preserve the secured creditor’s interest in the collateral securing the debt, pending the outcome of the bankruptcy proceeding. In essence, adequate protection is a means to protect a secured creditor from being deprived of the benefit of its prepetition bargain. When adequate protection is required under the Bankruptcy Code, section 361 of the Bankruptcy Code states that it may be provided (i) by making periodic cash payments to the secured creditor; (ii) granting the secured creditor an additional or replacement lien in other property of the debtor; or (iii) granting the secured creditor such other means of relief so that the secured creditor will realize the indubitable equivalent of its interest in the property.

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