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"Liquidated Damages Clauses in a Bidding Procedures Order" - ABI Journal, May 2013

5/1/2013

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"Liquidated Damages Clauses in a Bidding Procedures Order" - ABI Journal, May 2013, authors: Adams and Reese attorneys David Bowsher and Andy Freeman

In The Brown Publishing Company Liquidating Trust v. Brown Media Corp. (In re Brown Pub. Co.) (Brown v. BMC), the bankruptcy court interpreted a provision in the sale procedures order entered in con-nection with a § 363 sale to be an improper liquidated damages provision, and as such, the good-faith deposit was required to be returned to the successful bidder, who ultimately failed to close. If there is one overarching lesson that can be learned from Brown v. BMC, it is that bankruptcy proceedings do not operate in a bubble. The law in bankruptcy proceedings may often evolve on its own; however, practitioners need to be aware of other areas of law that may be applicable. In particular, practitioners should take care in drafting bidding procedures for § 363 sales to ensure that the terms therein comply with local contract law. In determining the amount of a break-up fee or similar good-faith deposit of a successful bidder, practitioners should keep in mind the principles of liquidated damages and the importance of rea-sonably estimating the amount of damages that may ultimately be incurred in the event the successful bidder fails to close.