Hytera Asks Court to Approve Sale of U.S. Subsidiaries to Other Hytera Entity
Wednesday, July 22, 2020 | Comments

Hytera Communications’ two U.S. subsidiaries asked a U.S. bankruptcy court to approve the process for a sale of its assets to the newly formed Hytera US or to a higher or better bidder. Meanwhile, Motorola has asked the court to dismiss the bankruptcy case, arguing that Hytera is using bankruptcy to delay legal proceedings against it.

In February, a jury for the U.S. District Court for the Northern District of Illinois awarded Motorola $764.6 million in damages from Hytera, finding that Hytera had stolen Motorola trade secrets and used them in its Digital Mobile Radio (DMR) products.

In May, Hytera America and Hytera (West), as well as HYT North America both filed for Chapter 11 bankruptcy, citing the damages from the Motorola case as a key factor in the bankruptcy. The damages awarded to Motorola make up more than 90% of the liabilities the companies list in their Chapter 11 filings.

In a May declaration to the bankruptcy court, Ni Huang, president and chief financial officer (CFO) of Hytera America (West) and Hytera America, said that the companies began looking at a potential sale in March after realizing the companies’ operations were not sustainable.

Huang’s declaration said the company was seeking a “stalking horse purchaser” to then start a court supervised auction process for the sale of the two companies’ assets. In bankruptcy proceedings, a stalking horse sale is an agreement or bid to buy a bankrupt firm or assets prior to the auction. The agreement essentially serves as a reserve bid that can help maximize the sale of a company. The declaration said that Hytera began the Chapter 11 reorganization proceedings as a “free fall” in the case that it could not find a stalking horse bidder.

According to Hytera’s motion for the court to approve the sale, Hytera worked with Imperial Capital to conduct a marketing effort for the two U.S. subsidiaries’ assets, starting on May 5. By the time, the two American subsidiaries filed for bankruptcy on May 27, the companies had not received any interest from potential acquirers.

Hytera’s motion said that the subsidiaries and Imperial continued marketing the assets after the bankruptcy filing and received two offers: one from Hytera US and another from an unidentified third party.

The subsidiaries conducted what they called “arm’s length back-and-forth discussions” with Hytera US for a month before reaching an agreement.

“Under these circumstances, the debtors determined that the stalking horse bid represented the highest and best offer with the most certainty currently available and established a substantial floor for further bidding,” the filing said.

Under the agreement, Hytera US would pay $7,897,459 for the assets of both Hytera US subsidiaries. Those assets would come without any liens under the agreement and exclude inventory and contracts related to the products found to infringe Motorola’s trade secrets.

According to records from the Delaware Division of Corporations, Hytera US was incorporated in Delaware on May 15. The records list the company’s status as in good standing.

“It is the debtors’ business judgment that, after considering potential alternatives, the proposed sale of the purchased assets is in the best interest of the debtors, their estates and their creditors and stakeholders,” the filing said. “… Overall, the proposed sale’s benefits greatly exceed those of any piecemeal liquidation. The proposed sale is supported by sound business reasons and is in the best interest of the debtors and their estates.”

Since the Illinois jury’s verdict against Hytera, Motorola has asked the Illinois court for both a temporary and permanent restraining order that would prevent Hytera from selling products that include the Motorola trade secrets.

Motorola filed a motion with the bankruptcy court in early July asking the court to dismiss the case or at the very least lift a stay on the Illinois legal proceedings caused by the filing of the bankruptcy case. In its filing, Motorola accused Hytera of filing the bankruptcy in “bad faith” in order to delay the Illinois proceedings and continue to sell and distribute products that include Motorola’s trade secrets.

“No meaningful progress can be made in these Chapter 11 proceedings until Motorola’s fully briefed motion for permanent injunction is resolved,” Motorola’s motion said. “The debtors state that they are seeking a buyer for their businesses and commenced these Chapter 11 cases as a ‘free fall’ bankruptcy while the debtors embark on a sale process. Yet, the debtors’ business is overshadowed by the cloud of Motorola’s pending injunction motion, which could permanently shut down nearly all of debtors’ illegal business operations.”

Motorola’s motion specifically took issue with Hytera’s proposal for a Hytera subsidiary to purchase the assets of the two U.S. subsidiaries, accusing Hytera of trying to “launder” its American subsidiaries.

“Simply put, this court should not countenance Hytera’s bad faith use of Chapter 11 to avoid posting an appellate bond, shelter its ongoing illegal infringement and launder the debtors’ assets,” Motorola said in its motion.

The subsidiaries and Imperial are continuing to seek other bids. Competing bids to the stalking horse bids are due on Aug. 14, and the two U.S. subsidiaries proposed an Aug. 18 auction if the auction is necessary. If the request is approved by the court, any potential bidders would need to make a deposit equal to 10% of their purchase price. The two subsidiaries also proposed an Aug. 20 hearing to approve the winning bidder.

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