When is a Break-up Fee not a Break-up Fee?

A break-up or termination fee is commonly paid to a prospective purchaser if a contemplated transaction is not consummated for reasons specified in the purchase agreement, including the seller’s acceptance of a competing bid. It is intended both to reimburse a "stalking horse" bidder for costs incurred in connection with due diligence and to compensate for the time, resources, effort and lost opportunity costs and risks incurred by a disappointed purchaser. Although break-up fees are a common feature of many transactions outside of bankruptcy, bankruptcy courts have sometimes struggled to determine whether, and under what circumstances, such fees should be approved as priority administrative expenses in a bankruptcy case. That issue was recently revisited by the bankruptcy appellate panel for the Eighth Circuit in In re Tama Beef Packing, Inc.