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Judge Sanctions Sale of Canoo Assets to CEO Amid Bankruptcy Proceedings
A judge has approved the sale of assets belonging to bankrupt electric vehicle (EV) startup Canoo to its Chief Executive Officer (CEO). Presiding over the Chapter 7 case, Judge Brendan Shannon stated during a Wednesday hearing that after assessing a number of limited challenges to the proposed sale, he found the process to be equitable. Judge Shannon noted that only Canoo CEO Anthony Aquila submitted a formal bid for the company’s assets. This decision marks a significant development in the ongoing Canoo bankruptcy saga.
Sale Clears Path for Aquila Acquisition
Judge Shannon’s ruling facilitates the acquisition of the majority of the EV startup’s assets by Aquila for approximately $4 million in cash. Lawyers representing the CEO indicated that Aquila intends to provide services to existing clients, including NASA and the Department of Defense, both of which had previously purchased Canoo vehicles before the company’s financial difficulties led to bankruptcy.
Canoo Bankruptcy Reflects Broader EV Sector Challenges
Canoo’s bankruptcy is the latest instance of financial distress among EV startups. The company joins a growing list of EV sector failures, including Fisker, Lordstown Motors, and Nikola, highlighting the intense competition and financial pressures within the electric vehicle market.
CEO Asset Acquisitions: A Recurring Trend
Canoo is not unique in experiencing its CEO attempting to acquire company assets during bankruptcy proceedings. Lordstown Motors’ founder and former CEO, Steve Burns, previously purchased the majority of his company’s assets through bankruptcy. Similarly, Trevor Milton, the newly pardoned founder and former CEO of Nikola, is currently seeking to do the same with his startup, indicating a trend of former executives regaining control through asset acquisition.
Limited Interest in Canoo Assets Despite Initial Inquiries
While Aquila ultimately became the sole bidder, other parties initially expressed interest in Canoo’s assets.
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Mark Felger, a lawyer representing Canoo, informed the court that approximately eight entities, aside from Aquila, signed Non-Disclosure Agreements (NDAs) and evaluated the available assets. However, only a few progressed to the stage of nearing a bid. One group, according to the bankruptcy trustee, allegedly raised potential concerns related to foreign ownership that could involve scrutiny from the Committee on Foreign Investment in the United States (CFIUS).
Harbinger’s Objection and Trade Secret Dispute
Notably, Harbinger, an electric truck startup, emerged as a significant party that considered bidding on the assets. Harbinger recently filed an objection to the sale, alleging that Canoo was concealing assets from potential purchasers. In response, lawyers for Aquila dismissed Harbinger’s objection as “unfounded and lacking any factual basis.”
The founding team of Harbinger, along with numerous early employees, had previously separated from Canoo in 2021 to establish the new startup. Canoo initiated legal action against these founders in late 2022, accusing them of misappropriating trade secrets upon their departure. This lawsuit remains ongoing.
Lawsuit Outcome Central to Asset Sale Value
The potential outcome of the trade secrets lawsuit has become a key aspect of the Canoo asset sale. The bankruptcy trustee believes a successful resolution for Canoo in the lawsuit could generate a substantial financial recovery, as well as potentially secure an injunction against Harbinger’s use of any allegedly stolen trade secrets.
Harbinger’s Counsel Questions Trade Secret Specificity
John Morris, representing Harbinger, emphasized during the hearing that despite two years of litigation, the specifics of the purportedly misappropriated trade secrets remain undefined to parties outside of Aquila. Morris stated that Canoo has not clarified, even confidentially, the nature of the alleged trade secrets, raising questions about the valuation process.
Concerns Over Asset Valuation and Sale Agreement Clause
Harbinger’s objection to the sale partly addressed this issue, arguing that the trustee or the appraisal firm could not have accurately assessed the value of the estate without clarity on the trade secret allegations. This lack of transparency, Harbinger contended, meant potential bidders were not fully informed.
Morris also raised the point concerning a specific clause in the sale agreement granting Aquila final approval over any potential settlement in the lawsuit with Canoo.
Morris asserted that the trustee had abdicated his fiduciary duty to the estate by granting a potentially conflicted Aquila the ultimate decision-making power regarding any settlement. Judge Shannon, however, refuted this argument.
Judge Shannon Affirms Sale Process Integrity
Judge Shannon cited the trustee’s testimony, indicating that negotiations with Aquila extended over weeks and involved multiple offers and counteroffers, as evidence that the sale was appropriately considered. He affirmed that Aquila’s relationship to the company was properly disclosed.
“The trustee has conducted a process that has yielded a substantial bid,” Judge Shannon stated, concluding that the sale has been “progressing with integrity.”
Resolution of Remaining Objections
Other objections to the sale primarily originated from companies with outstanding debts from Canoo or those possessing company equipment. Felger informed the court that the resolution process for most, if not all, of these objections is underway.