Section 363(n) of title 11 of the United States Code (the “Bankruptcy Code”) prohibits “collusive bidding” -- a process where “the sale price [is] controlled by an agreement among potential bidders.” Section 363(n) only provides the trustee with the right to bring a claim of collusive bidding, [which if successful could undo a previously approved sale]. However, courts have allowed unsuccessful bidders to pursue such claims. Further, unsuccessful bidders have the right to recover “any costs, attorneys’ fees, or expenses incurred in avoiding such sale or recovering such amount.”
Today, a lack of clarity exists regarding when an unsuccessful bidder may actually allege collusive bidding against a successful bidder. This memorandum explains this question by examining the following: (i) why an unsuccessful bidder may choose to invoke section 363(n) of the Bankruptcy Code; (ii) when an unsuccessful bidder will have standing; and (iii) the remedies available to prevailing unsuccessful bidders.