Earlier this week, in a post on the Western Biomass decision, we noted that a fundamental tension underlies bankruptcy auctions as the estate’s interest in obtaining the highest and/or best offer often conflicts with the estate’s need to preserve the integrity of the auction process in order to maximize value efficiently. As if on cue, Judge Sontchi of the United States Bankruptcy Court for the District of Delaware then approved a motion to reopen the auction in Allied Systems Holdings, Inc., Case No. 12-11564 (Bankr. D. Del. Sept. 9, 2013).
In Allied Systems, the debtors, a vehicle transportation company, sought to sell substantially all of their assets through an auction under section 363 of the Bankruptcy Code. After conducting a two-day auction in August 2013, the debtors determined that the winning bidder was an acquisition entity established by their first lien lenders, which offered a purchase price of $105 million ($40.5 million in cash and a $64.5 million credit bid). Shortly thereafter, the official committee of unsecured creditors, among others, objected to approval of the winning bid because it was “a complex, distressed M&A multi-purchaser transaction that is fraught with transaction risk … and was the product of an auction process that can be described as less than fair and open.” Two days later, the committee moved to reopen the auction to address “issues related to whether the Auction was conducted in a fair, open and transparent manner and whether the Debtors exercised sound business judgment in determining that the … Winning Bid was the highest and best bid.” The committee also presented a higher and allegedly better bid from a bidder that lost at the auction: $135 million ($125 million in cash and $10 million in notes or cash), as well as fewer execution risks than the winning bid. The debtors soon joined in the committee’s motion to reopen, stating that they believed it would eliminate the numerous “procedural objections” to approval of the winning bid and would allow the court “to focus its time and attention determining the real issue before the Court – which bidder has submitted the highest and best bid for the Debtors’ assets in accordance with section 363 of the Bankruptcy Code.” The bankruptcy court authorized the debtors to reopen the auction and scheduled a hearing to approve the outcome of the reopened auction for Tuesday, September 17, 2013.
Allied Systems is an excellent counterpoint to Western Biomass insofar as the parties seeking to reopen the auction framed the issue of accepting the post-auction bid(s) as the means to obtain the highest and best offer by preserving the integrity of the auction process. Unlike the parties objecting to approval of the winning bid in Western Biomass that asked the court to find irregularities in the auction process, the parties in favor of reopening the auction in Allied Systems presented the court with a seemingly simple solution for alleged irregularities. Nevertheless, the outcome in both cases was objectively the same: The winning bidder at auction was topped by a post-auction bid.
Our poll from Monday’s post is still open and, in light of the recent events in Allied Systems, we’re even more interested to learn what our readers think about this issue: