What Is a Stalking Horse Agreement?
Although not particularly common in smaller, personal bankruptcy filings, stalking horse agreements are used to maximize the overall value of assets during a sale. Taken from a hunting term in which fowl would not run away from hunters hidden behind their horses, stalking horse agreements occur when a third-party buyer tests the market for a debtor. These companies or individuals place an initial offer in the hopes of driving up the value of a debtor’s assets in bankruptcy auctions.
To discuss your options for dealing with debts and assets during bankruptcy, contact the Birmingham bankruptcy lawyers of Greenway Law, LLC, by calling (205) 324-4000 today.
How a Stalking Horse Agreement Works
The primary goal of any stalking horse agreement is to help the debtor by presenting their property in a positive light to potential buyers. As stalking horses lead the auction process by throwing in a substantial starting bid for the company or individual’s property, other bidders are meant to see this as a sign that the assets are worth bidding on. In order to protect stalking horses from actually having to bid on, and therefore buy-out, a debtor’s assets, the following protections are in place:
- Repayment for any legal processes involved in the act of bidding
- Break-up fees
- Establishing bidding procedures
As these agreements are meant to maximize the worth of a debtor’s assets, many jurisdictions permit the use of stalking horse agreements. However, these dealings may be contentious and may or may not be permitted in certain cases.
For more information regarding Chapter 7 bankruptcy and asset auctions, contact the Birmingham bankruptcy attorneys of Greenway Law, LLC, today at (205) 324-4000.