Slam Dunk for Credit Bid Cap - Delaware Bankruptcy Litigation
by: Restructuring & Bankruptcy of Greenberg Traurig, LLP  -  GT Restructuring Review
Wednesday, February 19, 2014

While one instance doesn’t prove much one way or the other, expect to see the successful Fisker Automotive auction trotted out as support for future efforts to limit credit bids. 

In a much criticized opinion, the Delaware Bankruptcy Court limited the credit bid of Fisker’s secured creditor, Hybrid Tech Holdings, Inc., to $25 million, the amount it had paid to purchase the secured claim. See In re Fisker Automotive Holdings, Inc., 2014 WL 210593 (Bankr. D. Del. 01/17/2014). The debtor had proposed a sale of substantially all assets to Hybrid for a $75 million credit bid, but the Court rejected that proposal out of concern that a large credit bid would chill the sale and discourage competing purchasers. The Court’s opinion was novel, not for imposing some limitation on credit bidding, but for limiting the credit bid to the amount paid for the claim.

Earlier this week Reuters reported that Hybrid was outbid at the bankruptcy auction. The winning bid was valued at $149.2, almost twice Hybrid’s initial proposed credit bid. With the auction appearing to produce substantial value for other creditors (press reports indicate that $8 million in liabilities will be assumed), 20/20 hindsight suggests that the Bankruptcy Court was correct to limit the credit bid.

Does this suggest that credit bids routinely will be limited to the amounts paid for the claims? Not at all. As explained in my earlier post, Credit Bidding and the Clash of Old and New Bankruptcy, the Court’s novel approach was the result of an unusual stipulation of the parties, and not the announcement of a new rule limiting the rights of claims purchasers to the consideration paid for the claims. Nonetheless, the Court’s analysis in limiting the credit bid in Fisker, coupled with the result obtained in the ensuing auction, will make the right to credit bid less certain in bankruptcy cases.

 

NLR Logo

We collaborate with the world's leading lawyers to deliver news tailored for you. Sign Up to receive our free e-Newsbulletins

 

Sign Up for e-NewsBulletins