Bankruptcy

On Break Up Fees

By Stephen Lubben

Or "break fees," as Pottow would call them. The 3d Circuit is just out with a new opinion that's primary contribution will be to add a dozen words to the asset purchase agreement.

In the case, the debtor entered into an asset purchase agreement whereby it agreed to try to get the deal approved without competitive bidding, but if the court required an auction, the debtor was obliged to seek approval of a break up fee.

The bankruptcy court orders an auction, and the debtor sought approval of the fee -- but the court denied it. After another bidder wins, frustrated initial bidder seeks payment of the break up fee and appeals.

The Circuit essentially says:  the debtor's obligation was to seek approval of the fee, the deal was not predicated on approval of the fee, and the bankruptcy court acted consistent with existing 3d Circuit caselaw.

So the next APA that you draft, won't you simply add "The buyer's obligations are predicated on approval of the break up fee"?  Am I missing something?

90 page law review article to follow.

Full post as published by Credit Slips on January 20, 2010 (boomark / email).