Sales
Sales of real estate during a chapter 11 case may take place "in the ordinary course" of the debtor's business or "outside of the ordinary course" of the debtor's business. The sale may be a private sale negotiated with a specific potential purchaser or a public sale in the form of an auction.
Bidding Incentives
The potential purchaser making the initial offer is often called the "stalking horse" bidder. The benefit of a stalking horse bidder is that it established the minimum purchase price and other minimum terms. Often the stalking horse is protected for the costs of its due diligence by being granting a break up fee, a topping fee, a minimum "overbid" amount, and minimum bidding increments.
A break-up fee is a payment of a sum to be paid to a proposed bidder if the proposed sale is not consummated. Break-up fees are also referred to as "topping fees", "cancellation fees", and "termination fees." The break-up fee may include the paying of the proposed buyer's due diligence or other lost opportunity cost. The break-up fee may be set forth in the initial letter of intent to purchase the assets.
A topping fee is an agreement by the seller to pay the initial bidder a percentage of the amount by which the bid of the successful bidder exceeds the initial bidder's offer. The initial bidder may be authorized to credit any topping fee that it would be otherwise entitled to against the purchase purchase, giving it an incentive to participate in the auction.
Minimum bidding increments or overbid amounts are the amounts by which competing bids must exceed the earlier bid.
Bidding Incentives
The potential purchaser making the initial offer is often called the "stalking horse" bidder. The benefit of a stalking horse bidder is that it established the minimum purchase price and other minimum terms. Often the stalking horse is protected for the costs of its due diligence by being granting a break up fee, a topping fee, a minimum "overbid" amount, and minimum bidding increments.
A break-up fee is a payment of a sum to be paid to a proposed bidder if the proposed sale is not consummated. Break-up fees are also referred to as "topping fees", "cancellation fees", and "termination fees." The break-up fee may include the paying of the proposed buyer's due diligence or other lost opportunity cost. The break-up fee may be set forth in the initial letter of intent to purchase the assets.
A topping fee is an agreement by the seller to pay the initial bidder a percentage of the amount by which the bid of the successful bidder exceeds the initial bidder's offer. The initial bidder may be authorized to credit any topping fee that it would be otherwise entitled to against the purchase purchase, giving it an incentive to participate in the auction.
Minimum bidding increments or overbid amounts are the amounts by which competing bids must exceed the earlier bid.