United States: Upsetting A Bankruptcy Auction: Money Talks

Last Updated: June 2 2014
Article by Vicki R. Harding

In re Sunland, Inc., 507 B.R. 753 (Bankr. D. N.M. 2014)

After a bankruptcy auction to sell a peanut manufacturing plant concluded, but before a court hearing to approve the sale, a chapter 7 trustee received a substantially higher bid from a party that had not participated in the auction. Under the circumstances, the court declined to approve a sale to the highest bidder at the auction.

The chapter 7 trustee had entered into a purchase agreement with a stalking horse purchaser (Ready Roast) and obtained court approval for typical sale procedures that included holding an auction if there were other qualified bidders interested in purchasing the property. A competing qualified bid was submitted by a potential purchaser (Hampton), so an auction was held.

The bidding opened at $17,475,000. After a total of 14 bids, Hampton was the highest bidder at $20,050,000, with Ready Roast as the backup bidder at $20 million. They each amended their purchase agreements to reflect the increased price, and the trustee sought court approval of the sale to Hampton at a hearing scheduled for the following afternoon.

However, the morning after the auction a company that had not participated in the auction (Golden Boy) attempted to contact the trustee and left a voicemail message that it was submitting a bid for almost $5 million more than the winning auction bid. Finding himself torn between his obligation to follow the sale procedures and a desire to maximize proceeds available for distribution to creditors, the trustee sought court guidance.

The court acknowledged that it did not have the power to choose the winning bidder. However, it did have the power to disapprove a purchaser based on best interests of the estate. The decision required weighing the competing interests of (1) the integrity and finality of the judicial auction process against (2) the best interests of creditors.

On the first point, the court noted that the bidding procedures made it clear that any sale would be contingent on court approval. It commented that there could be no sale contract without court approval, so that in reality the purchase agreement was just a binding bid.

On the second point, the court noted that the $20 million auction bid would probably be sufficient only to cover secured claims, administrative expenses, and priority claims – leaving little if anything for other unsecured creditors. So, a $5 million increase in the price would provide a significant benefit to unsecured creditors.

The court's decision was also influenced by its conviction that Golden Boy was not "lying in the weeds" in order to obtain a tactical advantage. Although Golden Boy was aware of the sale process and had expressed interest, its owners were in the process of selling Golden Boy and did not approve submitting a bid. The sale of Golden Boy closed about a month prior to the bankruptcy auction.

At some point an e-mail regarding the auction was sent to the former CEO of Golden Boy, but the person at Golden Boy who championed submitting a bid erroneously believed that Ready Roast had already completed the acquisition (as opposed to just signing a purchase to be a stalking horse). However, two days before the auction he learned that this was incorrect, and sought corporate approval to submit a bid on an expedited basis.

The approval did not come in time to allow participation in the auction, but did allow Golden Boy to communicate its bid to the trustee before the auction results were approved by the court. To demonstrate its commitment, Golden Boy wired a $25 million non-refundable deposit to a local title company and flew people in from Canada to present its case to the bankruptcy court.

While it is clear that the court was comforted by the fact that it could point to the requirement for court approval as a condition of sale in the bidding procedures and by its conviction that Golden Boy acted in good faith, it is also clear that the determining factor was the significant increase in proceeds for the bankruptcy estate.

In reviewing case law, the court pointed to a case finding that a bankruptcy court abused its discretion in approving an outside bid that was only "slightly higher" than the offer received in the auction and contrasted it to cases upholding decisions approving bids that were 21%, 31% and 16% higher than the winning auction bids.

In this case, the late upset bid was almost 25% higher and meant the difference between a negligible and a more substantial distribution to unsecured creditors (which the court noted would have the greatest impact on local farmers and small business owners). Consequently, the court concluded it could not find that the sale to Hampton was in the best interest of the estate, and denied the trustee's motion to approve the sale to Hampton. Instead the court reopened bidding with Golden Boy's $25 million bid as the opening bid.

At the reopened auction Golden Boy was the highest bidder at $26 million, exceeding Hampton's bid at $25.1 million. In ruling on Hampton's motion for various relief, including stay of the order approving the sale to Golden Boy, the court concluded that "at a minimum, it is more likely than not the decision will be upheld on appeal" based in large part on questions about whether Hampton had standing.

While acknowledging the injury to Hampton if the sale proceeded without a stay, the court was more persuaded by (1) the injury to others resulting from the delay (including a decline in value due to the fact that part of the assets being sold consisted of perishable peanuts) and (2) the strong public interest in paying creditors as much as possible. So on balance, the stay request was denied.

Typically the successful bidder at a bankruptcy auction will not be vulnerable to outside upset bids. However, that may not be the case if the stakes are high enough.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Vicki R. Harding
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.