Restructuring

Last month, we asked our readers what they thought a bankruptcy court should do when presented with a post-auction bid in a materially higher amount after the conclusion of an auction that had been conducted properly in accordance with court-approved bidding procedures.   A plurality of those responding (45%) believed that a bankruptcy court should reject the materially higher post-auction bid in the interest of preserving the process it had previously approved.  Yet a significant block of those responding (36%) advocated a middle-ground, in which the court would re-open the auction and allow all bidders to participate in additional rounds of bidding.  A distinct minority (13%), however, believed that the materially higher post-auction bid should be approved by the bankruptcy court because it represents a better outcome for the debtor’s estate.  The rest of those responding (6%) provided write-in responses that offered additional thoughts or qualifications to their responses.  Most suggested that the bankruptcy court should re-open the auction only if it found a justification other than price (e.g., irregularities in the auction process, grossly inadequate purchase price at the conclusion of the auction, or a valid excuse for the submission of a late bid).  Others stressed the practical importance (presumably from the buyer’s perspective) of break-up fees and scheduling approval hearings for a time immediately after the auction. Still others looked back to the facts of Western Biomass, questioned whether the party claiming to be a “de facto stalking horse” should have appreciated the inherent risk of late and non-conforming bids until the sale was approved, and endorsed court approval of the materially higher post-auction bid.
In conclusion, our readers are split on the issue.   Although the plurality of those responding believed that a bankruptcy court should preserve the process it had previously approved and reject a materially higher post-auction bid, the “re-open” contingent enjoyed a slight (3%) bump from write-in responses that supported re-opening the auction under certain conditions.  As the official chair umpire for this back-and-forth, we are compelled to declare “Advantage Process.”  The game, however, is far from over.
A special thank you to everyone who participated in the survey!