## Facts

- Blue Matrix Labs, LLC (BML) was a toy developer that owned several businesses, including Hydro Toys (HT).
- BML experienced financial distress and, with input from its professionals, concluded creditor recoveries would be higher if its businesses were sold as going concerns rather than liquidated in pieces.
- To sell HT, BML retained Global Toy Experts (GTE), a boutique investment bank focused on the toy industry, to market HT to likely buyers.
- Despite prepetition marketing efforts, no viable offers for HT were submitted.
- In December 2015, BML filed a voluntary Chapter 11 petition and continued operating as a debtor-in-possession (along with affiliated debtors in jointly administered cases).
- With bankruptcy court authorization, GTE continued postpetition marketing of HT.
- After extensive, good-faith, arm’s-length negotiations, a buyer entered into an asset-purchase agreement to acquire HT’s assets and served as the stalking-horse bidder.
- The bankruptcy court entered an order setting bidding procedures for the HT sale, including a deadline for bid submissions.
- BML and GTE continued marketing HT in line with the bidding procedures order, but no additional qualifying bids were received by the deadline.
- The stalking-horse bidder was therefore designated the successful bidder, and BML moved to approve the sale under 11 U.S.C. § 363.
- Objections to the sale were resolved through settlement, withdrawn, or overruled at or before the sale hearing.

## Issues

1. Whether BML showed an adequate business justification to sell HT’s assets outside a plan under 11 U.S.C. § 363(b).
2. Whether the sale process—including marketing and the court-approved bidding procedures—was fair, properly noticed, and sufficient to test the market.
3. Whether the buyer qualified as a good-faith purchaser entitled to the protections of 11 U.S.C. § 363(m).
4. Whether approving the stalking-horse transaction, in the absence of other qualified bids, was in the best interests of the estates and creditors.

## Decision

- The court granted BML’s motion and authorized the § 363 sale of HT’s assets to the stalking-horse bidder.
- The court found the transaction resulted from arm’s-length negotiations conducted in good faith.
- The court determined the marketing efforts and bidding process complied with the court’s bidding procedures order and provided a reasonable opportunity for competing bids.
- With no other qualifying bids submitted, the court accepted the stalking-horse bid as the successful (highest and best) available transaction on the record presented.
- The court concluded the buyer acted in good faith for purposes of § 363(m).
- The court disposed of objections by overruling them or recognizing they had been withdrawn or settled by the time of the sale hearing.

## Legal Principles

- A Chapter 11 debtor-in-possession may sell assets outside the ordinary course of business under 11 U.S.C. § 363(b) when the debtor demonstrates a sound business reason for the sale and satisfies notice and hearing requirements.
- In evaluating a proposed § 363 sale, the court may give weight to whether the debtor’s sale strategy is reasonably designed to obtain the best value available under the circumstances, including through a going-concern transaction.
- Court-approved bidding procedures, including the use of a stalking-horse bidder and an established bid deadline, are permissible tools to solicit competition and evaluate whether a proposed purchase price reflects market value.
- Adequate marketing efforts—especially when conducted by an industry-focused financial advisor—and compliance with approved bid procedures support a finding that the process was fair and that the sale price was properly tested.
- A buyer that negotiates at arm’s length and in good faith may receive the protections of 11 U.S.C. § 363(m), which limits the ability to unwind a consummated sale on appeal absent a stay.

## Conclusion

In re Blue Matrix Labs, LLC approved the debtor’s § 363 sale of Hydro Toys’ assets to the stalking-horse bidder, relying on evidence that the debtor pursued a going-concern outcome to improve creditor recoveries, conducted targeted marketing through Global Toy Experts, followed court-ordered bid procedures that produced no competing qualified bids, and sold to a good-faith purchaser after objections were resolved or rejected.


In re Blue Matrix Labs, LLC, Case Nos. 15-52977, 15-52978, 15-52980, 15-52981, 15-52979 (2016)