In three recent decisions, the U.S. Bankruptcy Court for the District of Delaware and the Southern District of New York reined in debtors and other interested stakeholders following their submission of asset sale bidding procedures that unfairly tilted the playing field in favor of certain preferred bidders or sought to exclude certain bidders. While debtors are often afforded reasonable discretion to craft procedures as they see fit, these cases test the boundaries of permissible bidding procedures and demonstrate that when it comes to approving bidding procedures, courts will generally favor procedural fairness over increased execution certainty with a favored bidder.

Asset Sales Under the Code

Section 363(b) of the Bankruptcy Code permits a debtor, after notice and a hearing, to sell property of the estate outside the ordinary course of business.1 Asset sales in Chapter 11 generally are effected in a two-phase bidding process, which is memorialized in a court-approved set of bidding procedures. When a debtor has negotiated a baseline asset purchase agreement with a lead or “stalking horse” bidder, the resulting bidding procedures reflect a balancing of the core bankruptcy objective of maximizing value for the benefit of estate creditors and granting incentives to the stalking horse bidder to commit its time and resources to an opening bid. Examples of these incentives or “bid protections” include an expense reimbursement cap and a break-up fee.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]