What Is a Stalking Horse Agreement?

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 BANKRUPTCY 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.

Contact Us

For more information regarding Chapter 7 bankruptcy and asset auctions, contact the Birmingham bankruptcy attorneys of GREENWAY BANKRUPTCY LAW, LLC, today at (205) 324-4000.

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