What? The Auction is Cancelled?

Tuesday, October 22, 2013 | Blog

What gives with that? There are many things that can cause the cancellation of an auction, but for this discussion we will focus on three of the most common causes: refinancing, bankruptcy, and bulk sale.

When an auction has been scheduled for a secured creditor, it is not uncommon for the borrower to refinance and restructure, and thus force a cancellation of an auction. Takeout financing is often structured in a way that allows business to continue and pay the original creditor. When this happens, the need for an auction no longer exists.

Bankruptcy affects auction sales in different ways depending on the situation. In a secured creditor auction, a borrower filing chapter 11 is afforded protection by the automatic stay under II U.S.C. §362. The automatic stay prevents any action to collect a debt, thus cancelling a secured creditor auction that was initiated pre-petition. Sometimes a borrower will file the morning of an auction, simply to buy more time. Oddly, the very next section of the bankruptcy code is II U.S.C §363. This section is the section that provides for the sale of assets outside the ordinary course of business and is the section that authorizes most bankruptcy auctions.

Lastly, an auction may be cancelled due to a bulk sale. It is possible that a creditor, a competitor, or third party may offer to purchase all assets for one lump sum. In this case, the borrower, bank, trustee… along with the auctioneer makes the decision whether it is a fair offer. A bulk sale is often beneficial to the client and the auctioneer because it is a guarantee that all assets will be sold. There is no way of guaranteeing the outcome of an auction, so if the offer is fair then the assets will be sold in bulk and the auction will be cancelled.

As the auctioneer, we never want to cancel an auction but hopefully this gives some understanding as to what is going on behind the scenes.