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Collusive Bidding on a Debtor’s Assets: A Question of Fairness

By: Ross Weiner

St. John’s University School of Law

American Bankruptcy Institute Law Review, Staff Member

Under section 363 of title 11 of the United States Code (the “Bankruptcy Code”), a trustee or debtor-in-possession may sell the debtor’s assets.  A trustee may avoid such a sale or recover damages if the sale process is controlled by collusion.[i]  In asserting a claim of collusive bidding, an unsuccessful bidder must show that it has standing and that the sale was affected by bad faith.[ii]  In In re Waypoint Lease Holdings LTD., the United States Bankruptcy Court for the Southern District of New York held that claims of collusive bidding on a debtor’s assets require a showing of unfairness to the unsuccessful bidder.[iii] During its Chapter 11 case, Waypoint Leasing Holdings LTD. (“Waypoint”) entered into a Stock and Asset Purchase Agreement (“APA”) with Macquarie Rotorcraft Leasing Holdings Limited pursuant to which Macquarie would buy substantially all of Waypoint’s assets.[iv] Previously, Waypoint attempted to sell its assets and entered into a non-disclosure agreement (“NDA”) with Defendant LCI Helicopters (“LCI”) that would allow LCI to “acquire confidential information from Waypoint relevant to the proposed sale.”[v] The agreement further provided that Macquarie would be entitled to a breakup fee in excess of $20 million dollars if the sale was not consummated. However, if Lombard, another potential bidder of Waypoint’s assets, and a secured creditor of Waypoint, made a bid for the assets, Macquarie would lose the breakup fee and be unable to submit a matching bid.[vi] Lombard ultimately made a bid causing Macquarie to lose its breakup fee.[vii] Subsequently, Macquarie [filed a complaint against] Lombard and  LCI Helicopters claiming that “Lombard’s bid was actually a joint, collusive bid by Lombard and LCI that deprived…[Macquarie] of its breakup fee”. Macquarie asserted three claims against LCI.[viii] Among them was the claim that LCI colluded with Lombard in order to sway the total cost of Waypoint’s assets in violation of section 363(n) of the Bankruptcy Code, which forbids collusive bidding. [ix] LCI moved to dismiss each claim[x] and the United States Bankruptcy Court for the Southern District of New York dismissed all claims with prejudice.[xi]

Section 363(n) of the Bankruptcy Code forbids collusive bidding, stating that a debtor may avoid a sale to a bidder if it is discovered that “the sale price was controlled by an agreement among potential bidders.”[xii] While unsuccessful bidders generally do not have standing under section 363(n), that rule “is not absolute.”[xiii] However, certain courts have concluded that unsuccessful bidders, like Macquarie, can have standing under section 363(n) to assert claims against successful bidders that ruined the “intrinsic fairness of the sale.”[xiv] To illuminate a circumstance of unfairness the plaintiff should show the transaction was injured by instances of fraud and bad faith.[xv] This may be illustrated by  “an unsuccessful bidder attack[ing] a bankruptcy sale on equitable grounds related to the intrinsic structure of the sale.”[xvi]

The court here concluded that Macquarie lacked standing to assert a claim under section 363(n) of the United States Bankruptcy Code because the sale was not intrinsically unfair.[xvii] An unsuccessful bidder will lack standing under 363(n) in two instances:  (i) when the contract on which they rely to bring the claim does not grant them standing under the Bankruptcy Code, and (ii) when the matter has already been decided through previous litigation.[xviii] The bankruptcy court’s holding is compatible with similar cases on collusive bidding. Failed bidders generally will lack standing under section 363 (n) of the Bankruptcy Code.[xix]



[i] Wallach v. Kirschenbaum, No. 11 CV 0795 SJF, 2011 WL 2470609, at *4 (E.D.N.Y. June 16, 2011).

[ii] In re Waypoint Leasing Holdings Ltd., No. 18-13648, 2019 WL 4273889, at *21 (Bankr. S.D.N.Y. Sept. 10, 2019).

[iii] Id. at 21

[iv] Id. at 4

[v] Id. at 3

[vi] Id. at 5

[vii] Id. at 6

[viii] Id. at 11

[ix] Id. at 12

[x] Id.

[xi] Id. at 3.

[xii] 11 U.S.C. § 363(n) (2012).

[xiii] In re Colony Hill Assocs., 111 F.3d 269, 273 (2d Cir. 1997) (explaining that while instances of standing for failed bidders are rare, if the sale was marked by fraud or unfairness, standing may be appropriate).

[xiv] Id. at 274. (using In re Harwald Co.  and  In re Beck Industries, Inc., the Court gives examples of failed bidders having standing under 363(n)).

[xv] Wallach, 2011 WL 2470609 at *4

[xvi] In re Hat, 310 B.R. 752, 758 (Bankr. E.D. Cal. 2004) citing In re Harwald Co., 497 F.2d 443, 444–45 (7th Cir.1974).

[xvii] Waypoint, 2019 WL 4273889 at 22.

[xviii]  Id.

[xix] Wallach, 2011 WL 2470609 at *4.