The asset purchase agreement provided for a breakup fee and expense reimbursement. However, the bankruptcy court did not approve the deal protection terms before the auction. Nevertheless, the court approved the breakup fee and expense reimbursement because it resulted in a successful auction that brought an additional $500K to the bankruptcy estate.

M&A Stories

July 21, 2023


In distressed business situations, auctions are common for selling assets out of bankruptcy to maximize creditor recovery. This blog explores a recent case where a stalking horse bidder was awarded a substantial breakup fee and expense reimbursement despite not having prior approval from the bankruptcy court.

The Deal:

The seller, an operator of petroleum barges, faced financial difficulties due to customer losses following a 2017 explosion and the pandemic’s impact on demand. To prevent foreclosure sales, the seller filed for bankruptcy and planned to sell the business through an auction. However, before the auction, no significant interest in purchasing the assets was secured, leading the seller to approach a previous post-petition bankruptcy financing company to act as a stalking horse bidder.

The Stalking Horse Bid:

The stalking horse bidder agreed to bid $110 million for 17 tugs and 12 barges. To compensate them for their time and expenses, the asset purchase agreement stated that if another bidder successfully purchased the assets, the stalking horse bidder would receive a $3.3 million breakup fee and $900,000 expense reimbursement. The agreement also set a floor price of $115.3 million, requiring other bidders to bid at least $500,000 more than the stalking horse bidder’s proposed price.

The Auction:

On auction day, another company purchased the assets for the minimum bid of $115.3 million.

The Lawsuit:

The seller’s creditors contested the stalking horse bidder’s entitlement to the breakup fee and reimbursement, arguing the lack of bankruptcy court approval before the auction. However, both the bankruptcy court and the Houston federal district court disagreed with the creditors. They recognized that the stalking horse bid established a floor, attracting an additional $500,000 for the bankruptcy estate. Given the unforeseen drop in oil prices on auction day, the court understood why the bankruptcy court’s approval was not obtained for the deal protection terms.

This case is referred to as In Re Bouchard Transportation Co.Civil Action No. H-21-2844, United States District Court, S.D. Texas, Houston Division, (May 31, 2022).

Lesson Learned:

The case emphasizes the importance of obtaining the bankruptcy court’s prior approval for deal protection, including breakup fees and expense reimbursements. Waiting until after the auction can lead to creditor pushback and legal challenges.

By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.



Telephone:      714 273-6291

Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles

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