A Note on Bankruptcy Auction with a Fair Bidder

In corporate bankruptcy auctions in India, the financial creditors choose the winner based on the bids and the share of bankruptcy surplus (bid value minus liquidation value) offered towards their claim settlement. We show that self-interested bidders allocate the entire bankruptcy surplus to the financial creditors, whose claim exceeds the bid. A fair bidder allocates the surplus between financial and operational creditors in proportion to their residual claims. The winning bid increases if the winner is fair, and the ratio of the residual claims of operational creditors to that of the financial creditors is greater than a threshold.