Restructuring

Contributed by Nelly Almeida.
We previously blogged on Judge Gross’ much talked about decision to cap Hybrid’s right to credit bid the $168 million claim Hybrid bought from the United States Department of Energy (the “DOE”) at the price Hybrid paid for the loan, $25 million.  As we noted, following the decision Hybrid filed an emergency motion for leave to appeal the ruling pursuant to 28 U.S.C. §§ 158(a)(1) and (3) and an emergency motion for direct appeal to the Third Circuit pursuant to 28 U.S.C. § 158(d)(2)(A).  The United States District Court for the District of Delaware denied Hybrid’s motions on February 7, 2014 and February 12, 2014, respectively.
In denying the first motion for leave to appeal, the District Court found that the bankruptcy court’s order was not a “final order” for the purposes of 28 U.S.C. § 158(a)(1) and that Hybrid failed to establish the factors required to justify an interlocutory appeal under 28 U.S.C. § 158(a)(3).  In finding that the order was not a “final order,” the District Court noted that there were many issues yet to be resolved by the bankruptcy court, such as the nature of Hybrid’s claims and how the proceeds of the auction would be distributed.  When determining whether Hybrid met the requirements for an interlocutory appeal, the court considered whether there was substantial ground for a difference of opinion regarding a controlling question of law, whether an immediate appeal would materially advance the case, and whether there were “exceptional circumstances” to justify an appeal before entry of a final order.  In finding that Hybrid did not meet the requirements for an interlocutory appeal, the District Court explained, first, that Judge Gross’ decision to cap credit bidding fell well within the confines of the Bankruptcy Code.  Indeed, the District Court cited to In re Financial News Network, Inc., 126 B.R. 152 (Bankr. S.D.N.Y. 1991), a case where credit bidding was disallowed altogether, and noted that “no action taken by the Bankruptcy Court in the instant case has been as drastic.”  Second, the District Court explained that the issue of whether Hybrid’s credit bid should be capped did not need to be resolved before a sale of Fisker’s assets could take place.  Third, the District Court found that Hybrid failed to demonstrate any “exceptional circumstances” to justify an interlocutory appeal.
For similar reasons the District Court also found that the circumstances of the case did not warrant certification to the Third Circuit under 28 U.S.C. § 158(d)(2)(A), which requires that for a direct appeal there must be an unresolved question of law or a question of law that requires the resolution of conflicting decisions, or the appeal must materially advance the progress of the case.  Specifically, the District Court found that (i) there is controlling Third Circuit case law recognizing a bankruptcy court’s authority to limit or deny a secured lender’s right to credit bid; (ii) there are no conflicting decisions regarding such authority; and (iii) direct appeal to the Third Circuit of Judge Gross’ decision would not materially advance the bankruptcy case.  The District Court cited to In re Philadelphia Newspapers, LLC, 599 F. 3d 298 (3d Cir. 2010) as the “controlling decision” where the Third Circuit recognized that the right to credit bid is not absolute and rejected Hybrid’s argument that In re Submicron Systems Corp., 432 F.3d 448 (3d Cir. 2006), a case where a secured creditor was allowed to bid the full amount of its claim even though the secured debt had no actual/economic value, conflicts with In re Philadelphia Newspapers.  The court clarified that in In re Submicron the court did not address the credit bid exception itself but, rather, considered the specific issue of whether credit bidding was improper under the specific circumstances of that case.  Further, the District Court reiterated that Hybrid produced no evidence that a sale of Fisker’s assets could not proceed unless the issue of whether Hybrid’s bid may be capped is ultimately resolved.
The sale of Fisker’s assets did proceed as scheduled.  The auction commenced on Wednesday, February 12, 2014 and lasted through Friday, February 14, 2014, following nineteen rounds of bidding.  Interestingly, according to The Wall Street Journal, the competition between Wanxiang and Hybrid drove the price for Fisker so high that Wanxiang will need antitrust clearance under the Hart-Scott-Rodino Antitrust Improvements Act before going through with the deal.  Indeed, Wanxiang’s winning bid is almost six times the price Fisker sought approval to accept in a private sale when it filed for bankruptcy.  The $149.2 million bid includes $126.2 million of cash, $8 million of assumed liabilities, and a contribution of common equity in an affiliate designated by Wanxiang.  Judge Gross approved the sale at a hearing held on February 18, 2014 and entered an order to that effect on February 19, 2014.  Now that Fisker’s assets have been approved for sale, the question will be how to split up the proceeds.  Hybrid is, of course, expected to argue that it is entitled to the vast majority of the proceeds as a result of its secured claim.  Notably, the sale order specifically preserves all of Hybrid’s rights with respect to whether its allowed secured claims, if any, may be satisfied by a distribution of equity without its consent.  It will be interesting to see how the DOE loan is ultimately valued, what consideration Hybrid receives on account of its claim, and the extent to which Hybrid was harmed (if at all) by Judge Gross’ decision to cap its credit bid.  As always, we will keep you posted!