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Stalking Horse Agreement

Buying a business in whole or in part using the 363 bankruptcy sales process is an important tool for buyers of troubled businesses. The free and clear transfer of ownership to assets, coupled with proactive negotiations on the purchase and sale contract and the auction process, can lead to a transaction leading either to the purchase of a business, or to the refund of fees or payment of a demerger tax at the conclusion of the sale transaction, if the stalking horse is not the winning buyer. In some cases, the creditors` committee or committees may ultimately prefer the stalking-horse buyer because of the relationships established during the sale process and the known ability to complete the transaction on time. Potential buyers may, for many reasons, be reluctant to play the role of harassing horse, but instead wait for another bidder to negotiate the deal and then participate in the auction. As a general rule, the original bidder must devote more resources than other bidders to negotiating the agreement, performing due diligence and defining the "lower limit" for the terms of the transaction. In order to compensate the harassment horse for its time and efforts, certain incentives are generally negotiated, subject to bankruptcy court approval. Without these incentives, the potential buyer would not be able to agree to be the harasser horse. These incentives may include refunds, separation fees, favourable tendering procedures and exclusivity agreements. The incentives demanded by the harasser`s horse may be at odds with the debtor`s obligation to obtain the highest and best value, and the requirements of the Bankruptcy Act.

Negotiations between the debtor horse and the harassing horse must find an acceptable balance, or the bankruptcy court cannot approve the proposed terms of the stalking horse. In general, a harassment horse sale can be good news for all participants. If you enter the public sale with an acceptable starting offer, you will at least be sure that the asset will receive more than low-level offers. But there`s room for unfair treatment. Any sales contract that discourages other bidders will likely result in a lower selling price. There are certain things you need to be careful about: fortunately, if you think the sale price is unreasonable or that the sale itself was unfair, you are within your rights to contradict the sales contract. They must object to the sale in a timely manner before the bankruptcy judge makes a final decision on the authorization of the sale. As long as you work hard, the end result of a stalking horse sale will probably be beneficial for all participants. There is no form required for a sales contract under Section 363 of the Bankruptcy Act, and for good reason. After all, every asset is different. Would you expect the sale of a dolphin pool to have the same stumbling blocks as selling a tractor? Of course not.

That is why the parties have a fairly rough margin for negotiation. In addition to negotiating the sale price and other asset-specific issues, the parties generally repair certain incentives that favour the bidder. The process of compiling an offer and the necessary diligence can be costly. It is not fair for the bidder to withdraw empty-handed after helping the debtor by starting with a strong bid to be outbid at the auction.

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