Selling assets under section 363 of the Bankruptcy Act or a reorganization plan offers a number of benefits to a buyer, but it also represents a number of potential barriers, particularly for buyers who are not familiar with the bankruptcy sale process. Benefits include (i) obtaining the free and unprivileged assets, (ii) protection against fraudulent transfer requests, (iii) protection against certain liabilities and certainty as to the applicability of the transaction documents as provided for in the bankruptcy court order, (iv) exemption from the need to obtain consent to assign certain contracts, (v) an expedited waiting period under the Hart-Scott-Rodino Antitrust Improvements Act, (vi) an exemption from certain state laws, including wholesale sales and shareholder approval, and (vii) in the case of sales under a confirmed reorganization plan, an exemption from land transfer tax. On August 4, 2008, Steve and Barry`s LLC, a casual clothing retailer, filed a hunting horse agreement with the U.S. Bankruptcy Court for the Southern District of New York. Their partner in this asset purchase agreement was BH S&B Holding LLC, a subsidiary of Bay Harbor Management.  On July 8, 2010, the Texas Rangers Major League Baseball team announced a possible stalking agreement. “An auction with a stalk horse or a minimum bid is used more often than a so-called `naked` auction with no minimum price,” said William K. Snyder, the court-appointed restructuring agent. In addition, the stalk horse bidder typically receives a `reasonable` separation fee if they fail the auction,” Snyder said.
As part of the abandoned plan, the Greenberg-Ryan Group`s $24 cash portion of the $24 with owner Tom Hicks would serve as a minimum offer, with the next offer being at least $20 million higher. Greenberg-Ryan would have received $15 million if he had lost.  By agreeing to the setting of the minimum price, the bidder undertakes to acquire the debtor`s assets, even if the value of the assets falls below the purchase price during the auction procedure. As long as the bankruptcy court has approved the hunting horse agreement, the agreement is binding on all parties and it will be difficult to renegotiate or withdraw the agreement. One of the issues that may be discussed between the stalking horse and the debtor is the circumstances in which the stalking horse is entitled to reimbursement and the date on which payment is actually due. A typical formulation is that the tracker horse is entitled to a payment if the debtor accepts a “higher and better offer” for the assets. What constitutes a “higher and better offer” is likely to be subject to negotiation, especially if the purchase price includes elements other than cash. The tracker horse will want to be paid once the highest and best offer has been accepted, while the debtor usually insists that payment is not due until the transaction with the new buyer is actually completed to ensure that the proceeds of the sale and not of exploitation or other means are available to make the payment.
Separation fees. Separation fees or additional fees are also common protections offered to stalking horse bidders. However, these fees can be controversial in many jurisdictions, and it is important to know a court`s position on these fees before claiming them. Break-up fees are more controversial than expense refunds because they make payments to the tracking horse that are not tied to the amounts spent to negotiate the deal or, in some cases, in addition to a negotiated refund. The demolition fee is essentially an additional compensation for the tracking horse in order to make it the first bidder and lay the groundwork for other potential bidders in an auction. Theoretically, the first bidder sets the “lower limit” of the purchase price and other terms of the transaction, and the separation fee is one of the incentives offered for the tracking horse to set a higher “floor”. While break-up fees may not always lead to the fixing of higher floors, most bankruptcy sales are likely to require separation from a potential hunting horse, and at the very least, whether a break-up fee will be included as part of the transaction will be one of the issues negotiated between the parties. .