Discover the complexities of M&A transactions within bankruptcy contexts in our latest blog post, “M&A Bankruptcy Auction: Buyer’s Liability to Another Bidder.” This insightful piece delves into a recent case where a prospective buyer of a distressed business navigates the challenges of proprietary information misuse and contractual breaches during a bankruptcy auction. Learn about the legal ramifications, strategic considerations, and court rulings that impact both buyers and sellers in these high-stakes environments. This post is essential for anyone involved in mergers and acquisitions, particularly those dealing with distressed assets and bankruptcy proceedings.
June 13, 2024
Buying a distressed business in bankruptcy offers significant advantages, primarily the ability to acquire assets free from most existing liabilities. However, this benefit does not protect against liabilities created by the buyer during the purchase process.
The distressed business buy-buy BABY, part of the Bed, Bath and Beyond bankruptcy, was recently auctioned. A prospective buyer developed proprietary forecasts, financial models, and strategic analyses for the bidding and post-acquisition phases.
Needing financial support, the prospective buyer partnered with a New Jersey-based supplier of the distressed business. Their agreement explicitly barred the supplier from bidding on the assets independently. The prospective buyer shared its analysis with the supplier, who then breached the agreement by successfully bidding for the business separately, securing its trademark, business data, and internet properties for $15.5 million.
In response, the prospective buyer sued the supplier in a Manhattan federal district court for misappropriating trade secrets. The supplier moved to dismiss the case, arguing that the issue should have been raised in bankruptcy court, citing the legal doctrine of res judicata and an injunction in the bankruptcy sales order prohibiting challenges to the auction.
The federal district court denied the supplier’s motion to dismiss, ruling that the prospective buyer’s claims were independent of the auction and not barred by res judicata or the injunction.
Case Reference: Go Global Retail, LLC v. Dream On Me, Inc. No. 23-cv-7987 (AS), United States District Court, S.D. New York, (April 26, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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