Bidding procedures establish a road map for the sale of a debtor’s assets in bankruptcy. This article examines certain key provisions a potential bidder on such assets will want included as part of the bidding procedures. While this list is not intended to be exhaustive, it serves as a good starting point for advancing the goals of a potential bidder.

Break-Up Fee and Expense Reimbursement

The stalking-horse bid is the initial bid on the debtor’s assets, which sets a baseline against which all other bidders must bid. One of the main inducements for serving as the stalking-horse bidder is the ability to negotiate a break-up fee and expense reimbursement. The break-up fee is a set amount paid to the stalking-horse bidder if it is not ultimately declared the successful bidder. The amount is designed to compensate the stalking-horse bidder on account of the time, commitment and effort made by the stalking-horse bidder to establish a bidding floor. The expense reimbursement is intended to reimburse the stalking-horse bidder’s actual legal fees and expenses under this scenario.

Buyers of distressed companies typically prefer to conduct their acquisitions through bankruptcy. Various provisions of the Bankruptcy Code and Rules allow a buyer to acquire assets free and clear of a wide array of liabilities. By making previously undesirable and worthless companies valuable, the Bankruptcy Code maximizes value, maintains the distressed business as a going concern, and produces recoveries to creditors where none could previously exist.

Where the target of a bankruptcy acquisition is a distressed health care provider, however, great care is required in order to ensure compatibility of the bankruptcy acquisition model with the regulatory regime governing health care companies. Health care providers operate in a highly complex and highly regulated industry. The myriad federal and state statutes and regulations applicable to health care companies can often conflict, or even collide, with the unique rules that apply to the sale of companies in bankruptcy. One such area of conflict concerns the intersection between the Bankruptcy Code’s provisions of sales under § 363 with HIPAA, a federal statute that, among other things, sets national standards for dealing with sensitive patient data.