Former Sleep Number CEO Shelly Ibach has secured an opportunity to submit a competing bid for the bankrupt mattress retailer after reaching an agreement with the company’s creditors, creating a late-stage challenge to the proposed acquisition by Sleep Country Canada.

Under the agreement announced in the U.S. Bankruptcy Court, Ibach and an unidentified investment group have until 4 p.m. ET on July 12 to submit a qualified bid under the court-approved bidding procedures. To remain eligible, the group must also provide a deposit equal to approximately 10% of its proposed purchase price by the prescribed deadline.

If the bid satisfies the required conditions, the group will be allowed to participate in the court-supervised auction scheduled for July 13. Failure to submit a qualified offer will prevent participation in the auction.

The agreement followed an emergency motion filed by Ibach seeking a five-day extension of the bidding deadline, arguing that additional time was required to complete due diligence and prepare a competitive offer. As part of the settlement, Ibach withdrew the motion and agreed not to challenge the existing sale timeline.

Sleep Number’s legal counsel opposed extending the process, stating that other bidders had already completed months of due diligence, signed confidentiality agreements, and participated in the structured sale process. The company argued that delaying the auction would increase bankruptcy costs and disrupt financing milestones.

During the court proceedings, Bankruptcy Judge Kyu “Mike” Paek encouraged the parties to explore a practical compromise rather than risk litigation that could complicate or delay the Chapter 11 proceedings.

Ibach, who led Sleep Number until May 2025, is working with a private investment group that was confidentially disclosed to the debtors during negotiations. According to court filings, she also holds an unsecured claim of approximately $10.3 million against the company and argued that her familiarity with the business would enable the investment group to move quickly through the acquisition process.

Sleep Number filed for Chapter 11 bankruptcy protection in June and agreed to sell substantially all of its assets to Sleep Country Canada Holdings Inc. under a $415 million stalking horse agreement, subject to receiving higher or better offers.

The court-approved sale schedule remains unchanged, with the bankruptcy auction set for July 13 and the sale hearing scheduled for July 15, while the anticipated transaction closing remains targeted for July 31.

The outcome of Ibach’s proposed bid could determine whether Sleep Country Canada’s offer remains the winning bid or whether a new buyer emerges during the bankruptcy auction.