Kirkland Alert Kirkland & Ellis LLP

Break-Up Fee Denied for Stalking-Horse Bidder in Bankruptcy Asset Sale

Chapter 11 debtors often sell all or part of their assets pursuant to section 363 of the Bankruptcy Code. These bankruptcy sales typically involve an auction process that uses an initial or “stalking horse” bidder to set the minimum price and other transaction terms against which other bidders bid. To compensate the stalking horse bidder for the time and money invested in formulating the transaction, providing a “floor” price, and establishing the potential terms for higher and better offers, the bidder is often awarded a court-approved break-up fee and expense reimbursement in the event it is outbid at auction.