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other bids.
The Third Circuit recently addressed the propriety of breakup fees and upheld the bankruptcy court's denial of a breakup fee. The Third Circuit held that the bankruptcy court was justified in concluding that the fee was not necessary to stimulate bidding, since the unsuccessful bidder bid without the assurance of such a fee, and the very active bidding up to a price more than $52 million more than the original bid suggested no breakup fee was needed to stimulate bidding.
In negotiating a breakup fee, parties should be careful to specify whether it is a fixed fee or is intended only to cover actual expenses up to a maximum amount.
Nonsaleable Assets
Although Code § 541(c)(1)(A) provides that property becomes property of the estate "notwithstanding an provision in an agreement, transfer instrument, or applicable nonbankruptcy law that restricts or conditions transfer of such interest by the debtor," this does not necessarily mean that a trustee or debtor in possession can sell such an interest. The Third Circuit has held that where state law makes tort claims nonassignable, they could not be sold by a trustee or debtor in possession.
Standing to Appeal
Generally unsuccessful bidders are denied standing to appeal an order authorizing a sale to another party, since unsuccessful bidders are not regarded as parties in interest in the bankruptcy case. But the prospective bidder may have limited standing to challenge the good faith of the purchaser. Absent a stay pending appeal, Code § 363(m) moots appeals of all issues except the purchaser's good faith, so debtors and purchasers should offer evidence of the purchaser's good faith and should ensure that the order approving the sale contains a finding that the purchaser purchased in good faith.
