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| vol 17, num 1 | April 2020 |
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| ► IN this issue:
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| Keep checking the list serve - the Asset Sale Committee is going to be announcing an upcoming webinar on how COVID-19 is affecting asset sales. |
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| Asset Sales Committee Annual Report |
| It was another great year for the Asset Sales Committee. The committee has strived to provide ABI members with access to helpful content and the opportunity to engage in discussions relevant to asset sales. Below are a few highlights of the committee’s activities last year.
Asset Sale of the Year Award
This past spring, in connection with the ABI Annual Spring Meeting, the committee named the inaugural winner of its Asset Sale of the Year Award. The award is given to a sale that was strategic, provided shareholders with value, displayed excellence from start to finish, and had strategic or legal significance and impact. Not surprisingly, there was a large number of applicants, and it was no easy task for the committee to select the winners. The inaugural award went to the asset sale in the Cobalt Energy case [17-36709 TXSB]. If you have not already done so, you can read about the case in the September committee newsletter. The committee also awarded an Honorable Mention to the asset sale in the Playhut, Inc. case [18-15972 CACD], which was also featured in the committee newsletter under the new
“Deal Spotlight” category.
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| Pass Interference: No End Runs Around § 363(o) in a Chapter 11 Plan |
| If the ruling on the field stands, consumer credit contracts are ineligible for sale free and clear of consumer claims and defenses through a chapter 11 plan. Hon. James L. Garrity, Jr. in the Southern District of New York recently ruled that while § 363(o) does not apply directly to sales through chapter 11 plans, § 1129(a) nevertheless precludes an attempt to strip a consumer’s defenses and rights of recoupment against a buyer who purchases the consumer’s mortgage debt under a plan.
The Playbook: § 363 vs. § 1123
The Bankruptcy Code provides for a sale of assets during a bankruptcy case in two ways: (1) by motion under § 363; or (2) through a chapter 11 plan pursuant to §§ 1123 and 1129.
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| Marijuana Update: Some Bankruptcy Courts Might Dance with Mary Jane |
| Thirty-three states and the District of Columbia permit some form of marijuana sales, and 11 states and the District of Columbia have enacted laws for the recreational sale and use of marijuana. Yet marijuana remains a “Schedule I” drug under the Controlled Substances Act, equivalent to heroin under federal law. As a result, many bankruptcy courts have held that a debtor engaged in, or even deriving income from, a state legal marijuana business is not eligible for relief under the Bankruptcy Code.
However, there seems to be at least a small shift in viewing such cases, particularly when the debtor is not in the direct business of growing, distributing or selling the product. Several cases have rejected the “automatic” dismissal of such cases.
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| In re BlackJewel, L.L.C., et al.: The Success and Limitation of Extremely Expedited Sale Processes |
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As the pace of chapter 11 cases quickens and the time frames within which they are filed, administered and closed become condensed, so too do the issues that may arise with accelerated asset sales under § 363 of the Bankruptcy Code. Although Bankruptcy Rule 2002(a)(2) requires at least 21 days’ notice of “a proposed use, sale, or lease of property of the estate other than in the ordinary course of business,” that period may be shortened for “cause.” Further, to pass the “business judgment” test imposed by courts to evaluate sale processes under § 363 of the Bankruptcy Code, any proposed sale process must, among other things, include proper exposure to the market and accurate and reasonable notice to all parties in interest. Proper exposure to the market frequently imposes certain limits as to how fast a sale process can be conducted. Nevertheless, in
certain instances where a debtor is a “melting ice cube” and the value of the debtor is rapidly declining, an asset sale under § 363 of the Bankruptcy Code may be approved on an incredibly expedited timeline.
Recently in the In re BlackJewel L.L.C., et al. bankruptcy case, the U.S. Bankruptcy Court for the Southern District of West Virginia approved one of the fastest sale-procedure timelines since the 2008 financial crisis and the collapse of Lehman Brothers.
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