If a court considers a sale to be “private,” a debtors` business negotiates substantial contractual concessions from the silos to give the debtor a chance to find another buyer, but the secured lender ends up buying it, it would create counterproductive incentives for secured creditors who exercise their rights to the detriment of the debtors under the code of commerce. However, where there is a certified security agreement, the next steps in obtaining a security interest must ensure that (a) the security interest granted has been “attached,” b) the insured party has given value and (c) a claim to be safeguarded. As a general rule, all of these requirements are met when the seller provides the buyer with goods or services without full payment. After taking all these challenges, the seller is now a secured creditor with an interest in security. The Tribunal reviewed many of HIG`s efforts to ensure that the transaction was appropriate. These include the provision of US$10 million for HIG`s interim financing of US$10 million for the continuation of the sale process, (ii) the direct payment of Pendum`s financial advisor and (iii) of a “fiduciary extract” allowing the Board of Directors to consider superior transactions after the expiry of the sale period. In total, the sale process lasted 55 days and involved discussions with 67 potential buyers. The Tribunal also examined the adequacy of the price paid for Pendum`s heritage and found that “the possibility of obtaining a higher price is not an exclusion from commercial adequacy.” Again, the Tribunal found that the selling price in relation to the company`s emergency must be examined. Takeaway The court found that the sale was economically appropriate in all respects. Instead of an inappropriate sales process, “it was hanging from less reliable financial reports, operational chaos, poor revenue streams and unproductive situation.
. . . bidders loyal to the offer were frightened. The case provides useful instructions on somewhat ambiguous terms in the UCC and reminds us that sales in a difficult context are a unique creature. A company in trouble on the auction block is often referred to as “melting ice”: cash, value and operating capacity tend to deteriorate more and more rapidly. Under Edgewater, a seller of these businesses may take this deterioration into account when making the sale. The UCC provides for other rules when a secured creditor, pursuant to Article 9, is held as collateral without legal proceedings. The following rules and deeds of the secured creditor vary depending on whether the secured creditor retains the security, sells the security in a private sale or conducts a public sale of the security.
See UCC 9-610, collateral post-defect provision and related rules that require a secured creditor to notify the secured debtor, who has been ordered to default. It should be noted that all surpluses realized through secured collateral must be paid to the secured debtor [buyer] when the secured creditor chooses to sell the security and the proceeds of the net sale exceed the guaranteed liability (see sections 9-615 of the UCC). The above rules relating to the transfer of collateral by a secured creditor imply that the shares of a guaranteed borrower in the guarantees are not eliminated solely by the holding of collateral by the secured creditor. Given this rule, the risk persists that a competing pledge right will be linked to the seized security until they are transferred by the secured creditor in accordance with the rules discussed above (which are mainly found in sections 9 to 610 to 9-615 of the UCC). That is why I always recommend that an imperfect secure creditor improve his or her security interest as soon as trouble arises, and certainly if he takes possession of the guarantees.