CHAPEL HILL, N.C. (BRAIN) — Head's bid to buy the assets of Advanced Sports Enterprises has become "problematic," in the words of one of ASE's attorneys, or "a gosh awful mess," in the words of the bankruptcy judge.
At a sales hearing Tuesday, U.S. Bankruptcy Judge Benjamin Kahn did not approve Head's $21.5 million offer for the assets and told the parties to renegotiate a purchase agreement and come back to him next week with a new offer to consider.
Head's attorney said the company understood that the purchase included about $9 million in cash that ASE had on hand, in addition to other assets. ASE's lawyers, as well as those of its major secured and unsecured creditors, said they had no such understanding.
Head said it wants a new auction or for ASE to agree to include the cash. ASE's creditors said they will not consent to a sale that includes the cash, and said a re-auction would cost time and money that ASE doesn't have.
The cash is largely the proceeds from ongoing liquidation sales of ASE's inventory and would normally go toward paying back ASE's creditors, along with proceeds from the auction. The inventory was specifically excluded from the auction.
Importantly, the lawyer for Wells Fargo Bank, ASE's largest single creditor and first in line to receive proceeds from the ASE estate, said the bank would not consent to a sale that included the cash. ASE owes Wells Fargo more than $20 million.
Attorneys for ASE said if they can't reach an agreement with Head, they would revisit an offer made at the auction by a group of bidders led by Taiwan's Ideal Bike. The Ideal group bid $22.5 million, but ASE chose to accept Head's offer for several reasons.
The Ideal group's bid was not designated a backup bid at the close of the auction, and Judge Kahn said he was unlikely to allow the bid to assume that role.
"That would seem to disregard the process we have set up," he said during the hearing.
Swimming upstream
At the hearing, Head's attorney, Charles M. Ivey, III, told Kahn that nothing in the court-approved bidding procedures or other court filings, or said at the auction, indicated the cash was excluded from the assets being sold.
"We believe we followed court orders and bought what the court said was being sold. And now we're being told that either the debtor or the auctioneer can change the procedure," Ivey said at the hearing.
Kahn was skeptical of Ivey's position.
"Has there ever been a bankruptcy case in which you have participated — I'll tell you there hasn't been one where I have — where the estate sells the cash?" he asked Ivey.
Ivey said it is done in some cases.
Kahn said, "Well, I don't have to decide this today but I can tell you, you are going to be swimming upstream to convince me."
Later in the hearing Ivey said that Head was ready to close the purchase if it included the cash, but otherwise, the company wanted a do-over.
"Bottom line is we think this needs to be re-auctioned," he said.
Ivey said that Head learned after the auction that Ideal had allegedly sold bikes with ASE trademarks last month, in violation of a court order. Ivey said that sale effectively devalued the ASE assets it had bid on.
"They should go home"
Steven Fox, an attorney for Wells Fargo, said no one at the auction thought the cash was being sold.
"The disconnect, to the extent that was one, is a product of their own minds, at Head," Fox said at the hearing.
"What we think this is really about, at the end of the day, is that after the conclusion of the auction certain facts came to light, troubling as they may be, that they now seek to take advantage of to renegotiate the price," Fox said, apparently referring to Ideal's sale of the bikes in December.
"If they are not prepared to make the purchase on the terms agreed to at the auction, we respectfully submit that they should go home," Fox said.
Fox said that another auction would be expensive and unfruitful and said accepting the Ideal bid was a better course. "They (the group members) are prepared to go ahead," he said.
While Fox, Kahn, and others alluded to the possibility of future litigation, Kahn said the parties should try to negotiate a purchase agreement in the next week.
"What will happen between now and the next hearing will be: everyone is going to decide who is going to be the buyer and who is going to ask me to approve their offer at the next hearing and under what terms," he said.
He then scheduled the hearing to resume on Friday, Feb. 1, and gave the lawyers their marching orders.
"I'm not going to tell you all how to do this today because this is a gosh awful mess that has been created here," Kahn said.
