## Facts

- Humboldt Creamery, LLC (Humboldt), a dairy company engaged in processing and marketing dairy products, filed a Chapter 11 petition in April 2009 in the U.S. Bankruptcy Court for the Northern District of California.
- Humboldt sought to sell its creamery operations as a going concern; the operations constituted substantially all of Humboldt’s assets.
- In July 2009, the bankruptcy court approved bid and sale procedures for the proposed sale.
- A stalking-horse buyer, F. Farms Dairy, agreed to an opening bid of approximately $20.5 million and a $300,000 breakup fee if it was outbid under the court-approved procedures.
- Humboldt and its professionals marketed the assets, but no competing bids were submitted; the stalking-horse bid remained the only offer.
- Humboldt asked the court to approve the sale under § 363 outside the plan-confirmation process, asserting that without approval and closing it would lack funds to continue operating after September 4, 2009.
- The court recognized that because Humboldt had significant secured debt, the sale would likely leave little for unsecured creditors.
- Despite the limited expected distribution to unsecured creditors, no creditor objected to the sale.

## Issues

1. Whether the bankruptcy court should approve a debtor’s pre-confirmation sale of substantially all assets under 11 U.S.C. § 363 based on the debtor’s asserted need to close promptly to avoid running out of operating funds.
2. Whether the court may approve the sale when the record shows meaningful marketing and a court-approved bidding process, but the stalking-horse bid is the only bid and unsecured creditors are unlikely to receive a distribution.

## Decision

- The court granted Humboldt’s motion and approved the sale of Humboldt’s creamery operations under § 363 outside a confirmed plan.
- The court found that Humboldt articulated a sufficient business justification for an expedited going-concern sale given the asserted inability to continue operations after September 4, 2009 absent the transaction.
- The court treated the court-approved sale procedures and the completed marketing effort—yielding only the stalking-horse bid—as evidence that the proposed price reflected the market in the circumstances.
- The court acknowledged that the secured-debt structure would likely leave little for unsecured creditors, but noted that no creditor objected and approved the sale as the best available alternative on the record presented.

## Legal Principles

- A Chapter 11 debtor may sell property of the estate outside the ordinary course of business under 11 U.S.C. § 363(b) with court approval.
- A pre-confirmation sale of substantially all assets may be approved when the debtor demonstrates a valid business justification and the transaction is shown to be in the estate’s interest based on the case record.
- Court-approved bidding procedures, including use of a stalking-horse bid and limited bid protections, can support approval when the process is exposed to the market and no higher bids emerge.
- In assessing a proposed § 363 sale, the court considers the process used, the debtor’s need for timeliness to preserve going-concern value, and the effect on creditor constituencies, including whether parties in interest object.

## Conclusion

In re Humboldt Creamery, LLC approved a pre-confirmation § 363 sale of substantially all of the debtor’s creamery operations after the debtor showed it could not fund continued operations past early September without closing, the assets were marketed under court-approved procedures that produced only the stalking-horse bid, and no creditors objected even though unsecured creditors were likely to receive little due to secured debt.


In re Humboldt Creamery, LLC, 2009 WL 2820610 (2009)