Distressed companies often can achieve a successful restructuring of their financial affairs through a sale of all (or substantially all) of their assets under Section 363 of the Bankruptcy Code. In fact, “sale cases” have become more prevalent in recent years because a more traditional Chapter 11 process—one in which confirmation of a plan of reorganization is pursued—often is laden with significant costs, delays and risks.
A Chapter 11 debtor that seeks to sell its assets must demonstrate to the bankruptcy court that it obtained maximum value for the subject assets. To accomplish that goal, the debtor will ask the bankruptcy court to approve a competitive auction process and related bidding procedures. The first step in that process typically entails the debtor’s execution of a binding “stalking horse” agreement with an initial purchaser against which higher and better offers can be solicited, and which spells out that the stalking horse will be deemed the “highest and best” bid if no competing proposals are received. By contrast, if competing bids are received, the stalking horse bidder may not prevail even if it is prepared to provide additional consideration to the estate at the auction.
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