Bankruptcy and appellate courts disagree over the standard that should apply to a request for payment of a break-up fee or expense reimbursement to the losing bidder in a sale of the debtor’s assets outside the ordinary course of the debtor’s business. Some apply a “business judgment” standard, while others require that the proposed payments satisfy the more rigorous standard applied to administrative expense claims. The U.S. District Court for the Southern District of Texas addressed this question in In re Bouchard Transp. Co., Inc., 639 B.R. 697 (S.D. Tex. 2022). The court affirmed a bankruptcy court order approving a $3.3 million break-up fee and more than $885,000 in expense reimbursement to a disappointed “stalking-horse” bidder in an auction of the debtors’ assets, finding that the payments satisfied both the business judgment test under section 363(b) of the Bankruptcy Code and the standard for approval of administrative expense claims under section 503(b).
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