Appeal from the United States Bankruptcy Court for the District of Massachusetts (Hon. Melvin S. Hoffman, U.S. Bankruptcy Judge) Bankruptcy Case No. 11-43424-MSH
The opinion of the court was delivered by: Kornreich, U.S. Bankruptcy Appellate Panel Judge.
Before Lamoutte, Kornreich, and Cabán, United States Bankruptcy Appellate Panel Judges.
The debtor, Formatech, Inc. ("Formatech"), appeals from the order of the bankruptcy court denying its motion to surcharge the collateral of Sovereign Bank ("Sovereign") and Massachusetts Growth Capital Corporation ("MGCC") under § 506(c) for fees and expenses incurred by its counsel.*fn1 For the reasons set forth below, this appeal is DISMISSED.
Formatech filed a voluntary petition for chapter 11 relief in the United States Bankruptcy Court for the District of Massachusetts on August 12, 2011.*fn2 Shortly after filing, Formatech received authorization to employ professionals to locate prospective buyers for its business as a going concern. Thereafter, EquipNet, Inc. was identified as a purchaser for all of Formatech's machinery and equipment for the sum of $655,000.00. Formatech agreed to sell its assets to EquipNet, Inc., subject to an order of the bankruptcy court allowing for bid procedures and an auction sale. The bankruptcy court approved the sale to EquipNet, Inc., as conditioned by Formatech, and set January 3, 2012, as the deadline for submitting bids. The auction date and hearing to approve the sale were set for January 5, 2012. The court-approved bid procedures provided that no bid would be considered unless it was (1) "received by Seller . . . on or prior to the Bid Deadline," and (2) "accompanied by a good faith deposit . . . delivered via wire transfer or certified funds to Seller's counsel." Additionally, Formatech was permitted "to waive defects in any bid and to provide bidders with an opportunity to cure such defects within three . . . business days after the Bid Deadline."
On the bid deadline, Formatech's counsel learned that Canaimex, Inc. had submitted an offer to purchase Formatech's assets as a going concern for $690,000.00. That same day, Formatech, while still a debtor-in-possession, filed a motion to surcharge the collateral of Sovereign and MGCC under § 506(c) for counsel fees and expenses in the approximate amount of $35,000.00 incurred in connection with the proposed sale. In making this request, Formatech stated that the sale would be for the sole benefit of the secured parties. The next day, Formatech's counsel received an uncertified check in the amount of $69,000.00 from Canaimex.
The auction sale and hearing to approve the sale took place as scheduled on January 5, 2012, without any disclosure by Formatech that the Canaimex check was uncertified. Canaimex was the winning bidder with a bid of $1,070,000.00. The backup bid was submitted by EquipNet, Inc., together with two other entities, in the aggregate amount of $1,045,000.00 for selected categories of assets.
A week later, the court entered an order approving the sale, indicating as follows:
Based on representations of counsel made on the record at the Sale Hearing, (1) the Debtor has appropriately marketed its assets in full compliance with the Bid Procedures Order, including with respect to the solicitation and evaluation of bids, the conduct of the Sale and the acceptance of the offer of the Winning Bidder and if necessary, the Backup Bidder, all such actions are hereby ratified and approved.
That order also stated: "The Debtor's determination that the Winning Bidder's offer of $1,070,000.00 constitutes the highest and best offer for the Assets constitutes a valid and sound exercise of the Debtor's business judgment." Subsequently, Canaimex defaulted on its obligation to close. The backup bidders stepped in and acquired the assets.
It appears that the details concerning Canaimex'suncertified check did not emerge until February 2, 2012, when, at the hearing on the surcharge motion, the bankruptcy court ordered that:
Debtor's counsel shall file and serve by February 17, 2012 a supplement to its fee application containing a description and breakdown of time billed for services relating to the sale of the Debtor's assets. In addition Debtor's counsel shall file and serve by that date a statement setting forth the base [sic] upon which counsel was entitled to accept a non-certified deposit check from the high bidder at the auction of the Debtor's assets.
Significantly, the bankruptcy court docket reflects that February 2, 2012, was also the day that the bankruptcy court granted the United States Trustee's ...