Having stipulated to these and other points, the debtors and committee then asked the bankruptcy court to decide whether Hybrid’s ability to credit bid should be limited based solely on three arguments the committee advanced: First, that credit bidding should not be permitted at all because Hybrid did not have or might not have valid liens on all of the assets that were to be sold as an entirety; second, that “cause” . Aug 04, · Procedural Headaches The execution sale of real property used as the debtor’s dwelling begins with a levy by the Sheriff or registered process server. Levying officers require a fee and cost deposit before performing real estate levies. These deposits vary by county, but are usually in the range of $ to $ days after the court's order to sell the property. If the property sale is not the primary residence of the judgment debtor, then the sale takes place days after the date of the recordation of the levy, or the date of the first publication of the notice of the sale.
Related videosTrustee Sales in a Chapter 7 Bankruptcy in Arizona
This article explores some of the basic procedures for conducting sales in bankruptcy and some of the issues of concern that different constituencies may have regarding such sales.
In general, however, bankruptcy courts will require some sort of open bidding procedure, often in the form of an auction, before approving the sale of significant assets of a debtor. The actual bidding procedures may vary from case to case depending on various factors, such as the nature of the assets to be sold, the number of potential bidders, the continuing viability of the debtor pending a sale and whether the sale is to take place pursuant to Section or pursuant to a plan of reorganization.
Generally, however, the sale process will involve the same set of conditions and requirements. Bidding procedures may involve a number of items, including setting the auction date, specifying the assets to be sold, establishing a break-up fee and the initial overbid and bidding increments that is, the amounts by which subsequent bids must exceed prior bids.
Any proposed bidding procedures must ultimately be approved by the court, after notice to interested parties and an opportunity for parties with a pecuniary interest i.
To the extent a prospective purchaser can influence the terms of the bidding procedures that are proposed by the debtor, the prospective purchaser is able to gain an advantage over other potential bidders for the purchase of the assets to be sold.
You may first learn of an opportunity to purchase assets in a bankruptcy sale process from an investment banker or financial consultant exploring the marketplace in an attempt to gauge interest. In an effort to start what the investment banker or financial consultant hopes will be a competitive bidding process and to encourage the bidding to begin, the investment banker or financial consultant may offer incentives to the first to bid on the assets. It is important to remember that it is generally not possible to lock up the purchase prior to obtaining approval of the sale from the bankruptcy court.
Usually, third parties will have the opportunity to come to court on the day the sale is scheduled for approval and offer a higher purchase price. This is more likely to succeed if the new offer is on the same terms as the initial offer. This notwithstanding, after the parties have agreed to the terms of the deal, but before a firm offer is made, the purchaser has the most leverage in imposing its terms on the debtor. For example, the stalking horse bidder can condition its bid on court approval of certain bidding procedures.
If the proposed procedures are not approved, the purchaser will generally reserve the right to withdraw its bid without penalty. In negotiating the initial offer, the goal of the prospective purchaser obviously is to acquire the desired assets at the best price.
If you are going to enter the bidding process and conduct due diligence, expect to be asked to sign a confidentiality agreement. In each instance, when considering whether to bid on assets sold through the bankruptcy sale process, the following fundamental issues should be considered with respect to the bidding procedures to be used to solicit bids and conduct the sale.
From the perspective of the stalking horse bidder, the earlier the auction the better. An earlier auction provides less time for other prospective bidders to formulate their bids and may make it more likely that additional bidders will fail to satisfy the requirements set forth in the bid procedures. There may, however, be a less subjective reason for holding the sale as soon as possible. In many instances, however, local rules of practice will impose parameters with regard to how much and to whom notice must be given.
This is particularly true if the assets are not declining in value. The purchaser will want to impose its form of asset purchase agreement on other bidders. The stalking horse bidder will determine which assets it wishes to acquire and then seek to limit any subsequent bids for those same assets.
In being the stalking horse bidder, one has the ability to structure a transaction and to purchase assets that one most wants, and potentially to deny other bidders the opportunity to buy different assets or a different amount of assets, or to pay for such assets in a different manner, i. Of course, from the perspective of almost all of the other constituencies in the case, i. A word here about the provisions of the asset purchase agreement pertaining to representations and warranties.
The purchaser will want some recourse if something should go wrong after the sale closes. The purchaser will generally understand that the debtor may not be able to respond to a breach of contract claim. However, if the estate will have substantial assets after the sale, the purchaser would not want to limit its claim for potential breaches of representations and warranties. Thus, the purchaser will want, at the very least, to ensure that the accuracy of the representations and warranties be a condition precedent to closing and may want a hold back of a portion of its purchase price to cover post-closing adjustments and breaches of representations and warranties.
If drafted properly, the sale order will offer greater protection than any representation or warranty—for example, a sale order will vest title in the purchaser free and clear of all liens and encumbrances, and can cut off successor liability.
Generally, the only way to obtain representations and warranties in the asset purchase agreement is to create an economic incentive by offering to pay for the representations and warranties. The initial bidder typically wants to set the break-up fee as high as possible. In most cases, a bankruptcy court will approve a reasonable break-up fee arrangement to the extent the court believes the fee will not chill the bidding process and is necessary to induce the initial bidder into making a binding offer.
The court may also look to the costs incurred or to be incurred by a stalking horse bidder when determining the reasonableness of a break-up fee. Limiting the break-up fee will limit the amount necessary for an initial overbid of the stalking horse bid. Generally, the lender will be neutral toward the break-up fee, but will not want the issue of break-up fees and expense reimbursement to slow down the sale process.
After all, the purchase price will have to pass muster with the lender for the transaction to move forward and the lender will largely be unaffected by these issues. Overbid amounts and bidding increments are amounts by which subsequent bids must exceed prior bids. That is not what a secured lender typically expects.
Credit bidding is a powerful tool, but it is not absolute. If the amount of its claim is disputed, the creditor may not credit bid. In Fisker Automotive Holdings, Inc. Del, Jan. Both courts capped the credit bids, primarily, to encourage competitive bidding. How other courts interpret Fisker and Free Lance may have significant repercussions for distressed debt buyers and for asset-based lenders.
Fisker manufactured electric cars, until it slammed on the brakes and went bankrupt. Fisker and related debtors filed their bankruptcies for the purpose of selling substantially all of their assets to Hybrid Tech Holdings before liquidating.
To save time and money, the debtors initially proposed to sell their assets to Hybrid at a private sale. The official committee of unsecured creditors committee opposed the private sale.
Instead, the committee pressed for an auction with Wanxiang America Corporation. At a hearing regarding the sale, the debtors and the committee agreed to stipulations that framed the issue for the bankruptcy court.
In its decision, the Fisker court acknowledged that a secured creditor is entitled to credit bid its allowed claim. Therefore, Hybrid would be permitted to credit bid. The only question was: in what dollar amount? First, it ruled that this would encourage Wanxiang to bid.