In a concurrence, Circuit Judge Jordan questions whether rollups are permitted under Eleventh Circuit authority.

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Case Type:
Case Status:
20-11652 (11th Circuit, Nov 01,2021) Published
11 U.S.C. § 363(m) made the individual debtors' appeal of a sale of property statutorily moot when the debtors failed to post a supersedeas bond and the sale was consummated. In dictum, the court stated that a credit bid by a creditor was not evidence of bad faith and could constitute value for purposes of 11 U.S.C. § 363(m).
Procedural context:
Most of the procedural context is in the discussion of facts. That said, the appeal wound up before the United States Court of Appeals for the Eleventh Circuit after the bankruptcy court approved the debtors’ § 363 sale of property to their secured creditor. After the sale order was final, the debtors appealed the sale order and argued that the secured creditor was not a good faith purchaser for value. The bankruptcy court disagreed with the debtors and ruled that the secured creditor was a good faith purchaser for value. The bankruptcy court nonetheless granted the debtors a stay if they posted a $1.5MM appeal bond. The debtors failed to do so, and the district court ruled that the debtors' appeal was statutorily moot due to 11 U.S.C. § 363(m). The debtors appealed to the Eleventh Circuit.
Robert Stanford, Sr. and Frances Stanford and their wholly owned company, American Printing Company (APC), separately borrowed money from ServisFirst Bank. The Stanfords' loan was secured by property owned by the Stanfords. The Stanfords guaranteed the APC loan, and APC guaranteed the Stanfords' loan. The Stanfords and APC filed chapter 11 bankruptcy cases. APC obtained the bankruptcy court's permission to obtain post-petition financing from ServisFirst. The post-petition financing was roll-up financing, meaning APC's pre-petition debt was refinanced by the DIP loan. In addition, the DIP loan rolled the Stanfords' separate obligations to ServisFirst into the roll-up debt, even though the Stanfords did not file a motion asking for approval of post-petition financing. The Stanfords were not required to execute new guaranty agreements in connection with the DIP loan. The Stanfords' bankruptcy counsel was present at all hearings on the roll-up DIP financing. The bankruptcy court approved the DIP financing. The Stanfords then moved, in their bankruptcy case, for permission to sell the real property pledged as collateral to ServisFirst to ServisFirst for a credit bid of $3.5MM. The Stanfords alleged that ServisFirst was a good faith purchaser for purposes of § 363(m). The Stanfords also alleged that the credit bid was the best value for the property and that the sale was at arms-length and fair and reasonable. The bankruptcy court approved the sale of the property and found that ServisFirst was a good faith purchaser for value. The bankruptcy court also found that the APC roll-up loan did not affect ServisFirst's lien on the Stanfords' property. After the sale order was final, the Stanfords moved to amend the sale order and to stay the sale. The Stanfords alleged, at this time, that the DIP loan by ServisFirst to APC converted the Stanfords' pre-petition obligations to ServisFirst to administrative claims against APC alone. After a hearing, the bankruptcy court ruled that the DIP loan made APC a co-obligor on the Stanfords' pre-petition debt to ServisFirst and otherwise did not affect the Stanfords' obligations to ServisFirst and no effect on ServisFirst's pre-petition lien on the Stanfords' property. The bankruptcy court granted a stay of the sale that required the Stanfords to post a $1.5MM appeal bond. The Stanfords failed to post the bond, and title the property was delivered to ServisFirst.

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