In re Fisker Automotive Holdings, Inc.
70 Collier Bankr. Cas. 2d 1525, 510 B.R. 55, 2014 Bankr. LEXIS 230 (2014)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The 'for cause' exception under 11 U.S.C. § 363(k) grants bankruptcy courts broad authority to limit a secured creditor's right to credit bid its allowed claim in an asset sale when such limitation is necessary to foster a competitive bidding environment, ensure a fair process, or address a bona fide dispute regarding the validity or extent of the secured claim.
Facts:
- Fisker Automotive Holdings, Inc. and Fisker Automotive, Inc. (the "Debtors") were founded in 2007 with the goal of designing and manufacturing premium plug-in hybrid electric vehicles in the United States.
- The Debtors faced significant challenges including safety recalls related to battery packs, the loss of substantial vehicle inventory during Hurricane Sandy in 2012, and the loss of a lending facility from the United States Department of Energy (DOE).
- As of November 22, 2013, the Debtors had approximately $203.2 million in outstanding indebtedness, including $168.5 million under a Senior Loan Facility with the DOE.
- On October 11, 2013, Hybrid Tech Holdings, LLC ("Hybrid") purchased DOE's $168.5 million position under the Senior Loan Facility for $25 million, effectively succeeding to DOE's position as the Debtors' senior secured lender.
- The Debtors and Hybrid subsequently entered into an Asset Purchase Agreement, under which Hybrid proposed to acquire substantially all of the Debtors' assets for consideration including a $75 million credit bid, and the Debtors decided against a competitive auction process.
- The Official Committee of Unsecured Creditors (the "Committee") opposed the proposed private sale to Hybrid and Hybrid's right to credit bid, advocating for an auction with Wanxiang America Corporation ("Wanxiang"), another interested bidder.
- The Debtors and the Committee later stipulated that if Hybrid's credit bid were limited (e.g., capped at $25 million or denied), there would be a strong likelihood of a competitive auction creating material value for the estate, as Wanxiang was prepared to increase its bid.
- The Debtors and Hybrid insisted on an expedited sale schedule, allowing only 24 business days for parties to challenge the Sale Motion, which the court found lacked satisfactory justification.
Procedural Posture:
- The Debtors (Fisker Automotive Holdings, Inc. and Fisker Automotive, Inc.) filed Chapter 11 bankruptcy petitions on November 22, 2013, in the U.S. Bankruptcy Court for the District of Delaware, with the stated purpose of selling substantially all their assets.
- The Debtors subsequently filed a Sale Motion (D.I. 13) proposing to sell these assets to Hybrid Tech Holdings, LLC via a private sale, which included a $75 million credit bid.
- The Official Committee of Unsecured Creditors (Committee) filed a Bidding Procedures Motion (D.I. 265), opposing the Debtors' proposed private sale and Hybrid's full credit bid, and advocating for a competitive auction process.
- During a hearing on January 10, 2014, the Debtors and the Committee presented a stipulated agreement to the U.S. Bankruptcy Court, narrowing the issues for judicial determination to whether Hybrid's credit bid should be limited under the circumstances.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does 'cause' exist under 11 U.S.C. § 363(k) to limit a senior secured creditor's credit bid in a Chapter 11 asset sale where an uncapped bid would eliminate competitive bidding, the sale process was expedited without justification, and the validity and extent of the secured claim are genuinely disputed?
Opinions:
Majority - Kevin Gross, U.S.B.J.
Yes, 'cause' exists to limit Hybrid's credit bid to $25 million because an uncapped bid would eliminate competitive bidding, the sale process was unfairly hurried, and the validity and extent of Hybrid's secured status are disputed. Bankruptcy courts possess statutory authority under 11 U.S.C. § 363(k) to permit a secured creditor to credit bid its allowed claim "unless the court for cause orders otherwise." This "for cause" exception is not limited to instances of inequitable conduct by the secured creditor, but can be invoked to serve any policy advanced by the Bankruptcy Code, such as fostering a competitive bidding environment, as established by precedent like In re Philadelphia Newspapers, LLC. In this case, the court found unrebutted evidence that an uncapped credit bid by Hybrid would entirely freeze, rather than merely chill, the bidding process, effectively precluding any auction. By limiting Hybrid's bid, the court would enable Wanxiang, a highly attractive and capable bidder, to participate and potentially increase its offer, thereby generating material value for the estate. Furthermore, the court found that the Debtors and Hybrid insisted on an unreasonably rushed sale schedule, initiating the bankruptcy cases three business days before Thanksgiving and demanding confirmation hearings immediately after the New Year holiday. This expedited timeline, lacking satisfactory justification, was deemed inconsistent with notions of fairness in the bankruptcy process and an attempt to "short-circuit the bankruptcy process." Finally, the court identified a bona fide dispute regarding the amount of Hybrid's claim that is properly secured. Unlike In re Submicron Systems Corp., where the secured status was clear but the collateral value deficient, here, the classification and extent of Hybrid's secured claim remain uncertain. The law precludes a lien holder from bidding its lien when its validity has not been determined, making it unclear how much of Hybrid's claim would be "allowed" as secured. Based on these three factors, the court concluded that limiting Hybrid's credit bid was justified.
Analysis:
This case significantly broadens the understanding of 'cause' under 11 U.S.C. § 363(k), affirming that bankruptcy courts have substantial discretion to limit credit bids beyond instances of creditor misconduct. It establishes that fostering a competitive auction and ensuring a fair sale process are legitimate grounds for limiting such bids, particularly when an uncapped bid would stifle competition and diminish potential returns for the estate. The ruling also emphasizes judicial oversight of sale timelines to prevent undue pressure on creditors and reinforces that genuine disputes over the validity or extent of a secured claim can be a basis for limiting credit bidding, providing crucial guidance for future bankruptcy asset sales involving complex secured financing.
