Affirming the Bankruptcy Code’s aversion to upsetting court-approved sales on appeal, on January 12, 2018, the U.S. Court of Appeals for the First Circuit held that a bankruptcy court’s “good-faith” finding protected a bankruptcy sale from appeal by a spurned bidder that claimed the auction sale was tainted by collusion and fraud. The case, In re Old Cold, LLC, underscores the importance of bankruptcy sale buyers seeking a good-faith finding and waiver of the automatic 14-day stay of orders when asking a bankruptcy account to approve a sale.

Background and Bankruptcy Court Decision -

When the financial condition of Tempnology, LLC deteriorated to the point that it could nolonger remain viable, the company filed a chapter 11 bankruptcy case and quickly sought a court-approved asset sale. Tempnology accepted a stalking-horse offer from Schleicher and Stebbins Hotels LLC (“S&S”), a secured lender that held a majority equity interest in Tempnology and controlled two members of Tempnology’s management committee prior to the filing. The S&S offer of $6.95 million consisted of forgiveness of existing secured debt owed to S&S. This stalking-horse offer was followed by an auction, at which Mission Product Holding, Inc. (“Mission”) offered $1.5 million cash. After a day-long auction process, Tempnology accepted an offer from S&S for $2.7 million in debt forgiveness, the assumption of certain debts, and leaving cash and certain assets in the estate. Following a two-day evidentiary hearing, the bankruptcy court approved the sale and included in its order language waiving a default rule staying the order’s effect for 14 days. The court specifically found no evidence of collusion or misconduct between Tempnology’s management and S&S, and found that S&S was a “good-faith purchaser” within the meaning of Bankruptcy Code section 363(m).