Sales of substantially all of a debtor’s assets are commonplace in corporate Chapter 11 bankruptcies. In many cases, the proposed sale is the primary reason the case is filed. The sale is supervised and approved by the Bankruptcy Court. Purchasers desire to know that if the sale is consummated, they will be protected from subsequent attacks on the sale and the sale process. If court-approved bankruptcy sales are protected from subsequent attacks, presumably more bidders will participate, resulting in greater returns for the estates and creditors. Issues surrounding the finality of a bankruptcy sale were recently reviewed by the U.S. Court of Appeals for the Eighth Circuit in In re Veg Liquidation, (f/k/a Allens, Inc.), Case No. 18-1786 (July 26, 2019).

The Sale and the Side Deal

The debtor in this case was Allens, Inc., an Arkansas food canning enterprise. Allens filed a Chapter 11 case in October 2013. After obtaining bankruptcy court approval for bidding and sale procedures for sale of substantially all of Allens’ assets, the debtor named Seneca Foods Corp. as the stalking horse bidder. A stalking horse bid acts as an opening bid. If additional bids are submitted, an auction is held. If not, the stalking horse bid is submitted to the court for approval. The debtor accepts the highest or otherwise best bid for the assets being sold, usually after consultation with its professional advisers and the creditors’ committee, lenders and others.

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