An insolvent entity will often have one or more businesses that, once separated from the insolvent organization or cleansed of their existing liabilities, is quite attractive acquisition targets.

For this reason, insolvency of a commercial enterprise will often lead to a court-supervised process for the sale of attractive business lines in order to maximize recoveries for stakeholders. The process can be highly formal, such as a court-approved, multi-stage, sale process and auction. The process can also be informal, where the assets in question are marketed under the direction of a court-appointed receiver or monitor.

Insolvency practitioners are regularly approached by potential acquirers who would like to have participated in a particular sales process for the business and assets of an insolvent company, but for a variety of reasons did not do so in the manner and on the timelines approved by the court or established by the court-appointed receiver or monitor. At that point, the sale process has run its course and a winner has been selected.

The potential acquirer may be ready and able to execute a transaction that could provide a much higher purchase price than the winner in the sale process. However, late offers are regularly rejected.

Would-be acquirers ask, “how can it be fair to refuse to consider my offer to acquire this business, when it is clearly superior to any other offer available?” This is not an unreasonable question in most non-insolvency contexts.

However, fairness in an insolvency context is a balancing act and must be viewed from the perspectives of: (i) the insolvent company seeking to sell its business or assets; (ii) the creditors of that insolvent company; and (iii) the bidder who emerged as the winner after following the required sale process and who has agreed to acquire the business.

These are the perspectives of stakeholders that have a legal or proprietary right in the property being sold. The late potential bidder has no legal or proprietary interest in this context and no legally recognizable right or interest that can be enforced or considered by the court.

The late bidder is out of luck in most cases. The bidder’s hopes will rest with creditors who may wish to argue that a late bid should be considered due to the higher potential recovery that may be available.

Those who are interested in acquiring a potentially attractive business that is owned by an insolvent company must actively engage in any formal process established for the sale of that business. Insolvency practitioners, such as lawyers or accountants, are often a good source of early information on potential acquisition opportunities in order to ensure that a potential acquirer does not miss its opportunity.