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Buyer Beware: Bankruptcy Sale Needs Notice – Due Process 101

| May 4, 2022 | Bankruptcy, Bankruptcy, Debt, Debt

By: Laura Day DelCotto

So, we know from our long experience here that bankruptcy sales can get very messy. The Seventh Circuit’s recent 5 page opinion makes it clear that the one who needs to care the most is often the buyer.

Notice of Sale is a Basic Right

In Archer-Daniels-Midland Company v. Country Visions Cooperative, we can see that even sales more than 10 years old can run into problems. In a 2010 chapter 11 case, the debtor in possession ended up with an agreed plan which included selling a piece of real estate to ADM as the buyer. Short findings of fact by the bankruptcy judge found that ADM was a “good faith purchaser” under 11 USC Section 363(m).  Normally, this finding is the gold that the buyer is searching for.

However, come to find out, both the debtor and ADM knew that a third party had an interest in the property – a recorded right of first refusal. ADM obtained a title review before the sale, and the interest showed up. Also, apparently no one decided to tell the bankruptcy court about this interest, and the third party, Country Visions, was not “on notice” in the case. Its contract rights were not listed and it was not on the mailing matrix or sale noticing pleadings. Bad news and first-year lawyer issues here. [Note: the bankruptcy judge later discussed whether to find a fraud on the court, but held off doing so.One has to wonder why no one mentioned this at the time].

Bad News for Buyers

So, the ‘rest of the story’ is that ADM and Country Visions ended up in over 5 years of litigation in both state and federal courts over whether Country Visions could seek damages against ADM. Very. Costly. Ouch. All the courts held that ADM was not in fact entitled to a “good-faith purchaser” finding when the evidence was clear that it knew of the interest before the sale hearing and stood silently (or didn’t verify proper notice had been given by the debtor).

If you become involved in a bankruptcy sale, please hire some experienced bankruptcy counsel so this doesn’t end up happening to you. It is worth some fees up front to counsel to participate in what is going on, so it doesn’t bite you after the fact.

About DelCotto Law Group

DelCotto Law Group is Kentucky’s asset preservation and business restructuring law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy and complex litigation. For more information please call (859) 231-5800, email [email protected] or reach us on our contact page.