Issue link: https://mbozikis.ufcontent.com/i/1422521
94 trustee will submit a motion to approve various procedures to govern the sale process. Where a stalking horse bidder is involved, such bid procedures typically include various bid protections, such as break-up fees, topping fees, expense reimbursements, minimum overbid increments, bidder qualifications, or no-shop clauses that restrict a trustee's ability to market the asset. These are included in order to compensate the stalking horse bidder for the expense and risks associated with assuming such role. Courts have adopted varying standards for approving specific bidding procedures. First and foremost, a court will determine whether the procedures maximize the asset's sale price. See Steve & Barry's Manhattan LLC, 2008 WL 8168312 (Bankr. SDNY Aug. 5, 2008). One of the more critical components of the bidding procedures is the provision of a break-up fee for the stalking horse bidder in the event that it is outbid in the sales process. Typically, courts will consider whether the fee is reasonable, made in good faith, encourages higher bids and is generally beneficial to creditors and equity holders. See In re Integrated Res., Inc., 147 B.R. 650, 657 (S.D.N.Y 1992); see U.S. Trustee v. Bethlehem Steel Corp. (In re Bethlehem Steel Corp.), No. 02 Civ. 2854, 2003 U.S. Dist. LEXIS 12909 (S.D.N.Y. July 23, 2003). Courts also evaluate a break-up fee in the context of Section 503(b)(1)(A) and require that the trustee demonstrate that the break-up fee is a necessary expense to preserve the value of the estate. See In re O'Brien Envtl. Energy, Inc., 181 F.3d 527, 535 (3d Cir. 1999). A break-up fee can preserve the value of an estate: (1) by inducing the first bidder to make an initial bid; or (2) by inducing the first bidder to adhere to its bid after the court orders an auction. See In re Reliant Energy Channelview LP, 594 F.3d 200, 206-09 (3d Cir. 2010). Generally, courts have authorized break-up fees in the amount of one to four percent of the purchase price. See In re Tama Beef Packing, Inc., 321 B.R. 192, 195 n.1 (Bankr. N.D. Iowa 2004) (listing cases), rev'd on other grounds, In re Tama Beef Packing, Inc., 321 B.R. 496 (B.A.P. 8th Cir. 2005).