The Delaware bankruptcy court has issued an interesting opinion regarding the ability of a winning bidder to receive an award of administrative expenses attributable to an entity attempting to purchase a debtor's assets. In Women First Healthcare, Inc., the court had initially approved an asset sale to Sun Pharmaceuticals Industries, Ltd. ("Sun"), but before the sale closed reopened the bidding and ultimately awarded the sale to Mutual Pharmaceutical Company, Inc. ("Mutual"). Sun then sought an administrative claim of roughly $300,000 for costs it incurred in efforts to close the sale.

On September 8, 2004, the court entered a bid procedures order that approved Sun as the stalking horse bidder. No other bids were received by the deadline, and on September 22, 2004, the court entered an order approving the sale to Sun. On October 4, Mutual filed a motion seeking reconsideration of the sale order, citing among its reasons that it had an interest in some of the assets to be sold but was not notified of the sale. The court granted the motion, reopened the bidding process, and Mutual submitted the winning bid.

The court determined that Sun was entitled to an administrative claim for the expenses it had incurred between September 22, 2004, (the date of the sale order) and October 4, 2004, (the date Mutual filed its motion) pursuant to Reading Co. v. Brown, 391 U.S. 471, 477 (1986), which concluded that a party damaged by a debtor's post-petition tort was entitled to administrative priority status. Here, Sun claimed negligent misrepresentation. The court acknowledged that Sun had relied on the debtor's representations and the court's prior order and that "fundamental fairness" required that Sun be compensated for expenses it incurred as a result between the date of the sale order and the date of Mutual's motion. Nonetheless, the court reviewed the asserted expenses for reasonableness and awarded less than Sun had requested.

As for expenses incurred after October 4, 2004, the court determined that Sun could assert an administrative claim under 11 U.S.C. ? 503(b)(1)(a) to the extent such expenses benefited the estate. The court reviewed these expenses more closely and disallowed a substantial portion.

Ultimately, and over the objections of both Mutual and the U.S. Trustee, Sun received $49,034.88 in addition to the breakup fees and other expenses the court had allowed as part of the original bidding procedures order.

http://www.deb.uscourts.gov/Opinions/2005/WomensFirstHealthcarevSunF.pdf

Mac