The decision came out this spring, after York County-based Wolfgang Candy Co. Inc.’s Chapter 11 bankruptcy filing in March.
The deal now is expected to close Aug. 31 after M&T Bank agreed to give the buyer until then even though there had been an expectation the deal would close late last week, Wolfgang’s attorney said.
In its ruling, the Supreme Court upheld the right of secured creditors to use the debt they are owed instead of cash if they want to bid on assets of the entity indebted to them in bankruptcy proceedings, said Juliet Moringiello, professor of law at the Dauphin County campus of Widener University School of Law.
For certain debt holders, such as Buffalo, N.Y.-based M&T Bank in the Wolfgang case, this makes it easier to bid on assets instead of having to go back into their own coffers and allocate cash on top of the money they have already lent out, Moringiello said.
In a financial world where loans might be syndicated among multiple lenders, it could be especially problematic to get cash allocated, she said.
Larry Young, the attorney representing Wolfgang with York-based CGA Law Firm, referenced the case when giving Chief Judge Mary France a rundown last week in bankruptcy court on the proposed sale of the North York-based confectioner.
Divine Serendipity LLC President and CEO William “Wayne” Sellers previously requested to buy substantially all of the company’s assets for $1.5 million.
M&T Bank has been owed more than $4 million, according to court filings.
A letter dated Aug. 2 and included in the court filing revised the offer to the new purchase price of $885,000 and a monthly triple-net lease rate of $10,000 for Wolfgang’s real property for a term of four years, according to the filing.
The new sales deal also excluded cash and accounts receivable, the filing stated. M&T said it approved of this sale.
France, presiding over the hearing in the U.S. Bankruptcy Court for the Middle District of Pennsylvania, later gave her approval for the sale.
No production stoppages were expected throughout the sales closing process or after, Wolfgang President and CEO Benjamin McGlaughlin said on Tuesday.
With credit bidding, the debt holder can more simply use the debt it is owed in lieu of cash. It effectively gives a lender a trump card and, therefore, more say in the details as bankruptcy sales plans are assembled, Moringiello said.
Opponents say the right deters having more parties offer bids, because the possibility of a credit bid up to the amount a secured lender is owed hangs over their potential offers, Moringiello said.
The right to credit bid has been the prevailing interpretation of bankruptcy law on the books, but a decision from the federal Third Circuit Court of Appeals pertaining to the assets of Philadelphia newspaper properties went the other way, she said.
The judges by a 2-1 margin said in effect that a secured creditor needed to bring cash to the table.
The separate but similar bankruptcy case made it to the U.S. Supreme Court, which upheld credit bidding in the California case, RadLAX Gateway Hotel v. Amalgamated Bank.
“It’s not an earth-shattering decision, but it is favorable to secured creditors,” she said.