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vol 16, num 1 | March 2019 |
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Stalking-Horse Bid Protections: Getting the “Credit” You Deserve at the § 363 Auction |
Investors and those representing them go to great lengths to maximize the value of their deals in § 363 asset purchases. But if they’re not careful, they could easily find themselves in the following auction scenario, where a little ambiguity jeopardizes significant value that a “stalking horse” bidder thought it had already negotiated.
The Scenario
You’re an investor kicking the tires on a company in bankruptcy. You love the upside of this company, but you’re worried about expending significant time and money vetting the opportunity (including attorneys’ fees, quality-of-earnings analysis, valuation and appraisal work, and site visits), only to possibly end up in a bidding war with others taking a free ride on your due diligence.
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Section 363 vs. Out-of-Court Sales |
Over the past several years, financially distressed companies have increasingly used bankruptcy as the preferred method to sell significant assets or entire businesses. Section 363 of the Bankruptcy Code allows a chapter 11 debtor to sell assets outside the ordinary course of the debtor’s business, clear of existing liens and claims, if the debtor demonstrates a good business reason for the sale. Depending on the facts and circumstances, however, a sale of distressed assets via an out-of-court transaction may be the best path forward. This article examines the pros and cons of a sale pursuant to § 363 of the Bankruptcy Code (“363 sales”)
versus an out-of-court transaction. This article is not meant to be an exhaustive outline of all of the pros and cons of these alternatives, but it is meant to provide a macro view of the major considerations required when acting as an advisor to an insolvent business or its creditors. |
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ANNUAL SPRING MEETING REGISTRATION OPEN NOW! |
Join the Asset Sales Committee at ABI's Annual Spring Meeting, one of the biggest insolvency events of the year! Mix professional development and networking at a variety of timely educational sessions, networking events, and optional programs — all in the heart of Washington, D.C.
This year, the Committee will be pairing with the Ethics and Professional Compensation Committee to host a session titled, Asset Sales, Not So Free and Not So Clear. Speakers for this session include:
- Peter Barrett - Kutak Rock LLP; Richmond, VA
- Scott Cohen - Engelman Berger, PC; Phoenix
- Peter Roberts - Fox Rothschild LLP, Chicago
- Cynthia Romano - CR3 Partners LLC, New York
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