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| vol 18, num 2 | March 2021 |
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ABI Live Webinar:
Navigating Ethical Issues During Asset Sales |
ABI’s Asset Sales and Ethics and Professional Compensation Committees sponsored a great webinar on Feb. 10 titled "Navigating Ethical Issues During Asset Sales." More than 150 attendees heard panelists Steve Blank of King & Spalding, Joe Briggett of Lugenbuhl and Ken Mann of SC&H Capital discuss ethical issues professionals may face in asset sales, while weaving in some very entertaining, real-life stories from previous deals. Evelyn Meltzer of Troutman Pepper served as the moderator, and she did a wonderful job engaging with the panelists and spurring some lively debate and
discussion on the topics of collusion and fiduciary responsibility. The conversation went over its allotted hour and addressed real-world issues that arise in these situations, which provided for an entertaining session. For those who were unable to attend, a recording of the webinar can be found on ABI’s website. A follow-up article on collusion, authored by one of the panelists, follows this article. We are looking forward to bringing you additional programs in the coming year that will continue to address topical and informative issues facing insolvency professionals.
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| What Is Collusion in a § 363 Auction? |
| Recent allegations of impropriety of bidders in the reorganization of Neiman Marcus Group Ltd. LLC should serve as a reminder to study the line between mere auction strategy and collusive bidding. The word “collusion” itself seems to cause confusion whenever it is uttered in the political or legal realms. Fortunately, in the context of bankruptcy sales, the Bankruptcy Code provides some parameters for what constitutes collusion.
Webster’s Dictionary defines collusion as “[a] secret agreement between two or more persons for a fraudulent or deceitful purpose.” In the context of bankruptcy asset sales, § 363(n) of the Bankruptcy Code is the starting point. It does not use the word “collusion,” but it provides a working definition of it, to which courts have often referred. It allows the trustee to avoid a sale when it is shown that “the sale price was controlled by an agreement among potential bidders at such sale.” While this has been utilized as a definition of collusion, § 363(n) does not purport to be an ethical guideline. It merely provides the elements that must be shown for a trustee to obtain relief.
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| The Sins of the Father: Successor Liability in § 363 Sales |
| One of the hallmarks of purchasing assets from a bankruptcy estate under § 363 of the Bankruptcy Code is the perceived ability of a buyer to purchase those assets “free and clear of any interest in such property” if certain conditions are met. A common phrasing in many motions seeking to sell assets under § 363 is that the assets are to be sold “free and clear of all liens, claims and encumbrances.” But that is not what the statute actually says. Section 363 simply refers to sales potentially being “free and clear of any interest in such property.”
Somewhat notoriously, the Bankruptcy Code then fails to provide a definition of the term “interest.” That omission has left the courts to struggle for decades to address whether a debtor’s assets were sold “free and clear” of a particular claim or interest in the assets sold, sometimes well after the conclusion of the sale to the purchaser. Perhaps in no context is this more aggressively litigated than in the context of claims for which the purchaser is subject to successor liability on account of action or inaction by the debtor-seller.
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| 2021 ASSET SALE OF THE YEAR AWARD INFORMATION |
ABI's Asset Sales Committee has opened the application period for the 3rd Annual Asset Sale of the Year Award. Submissions are due by Monday, April 5, 2021. Please see here for more information.
Nomination Deadline
Monday, April 5, 2021
Criteria
- Completion of a sale that was strategic and provided stakeholders with value;
- A display of excellence across the full spectrum of the sale process, from the initial targeting through pursuit, structuring and financing to complete a transaction;
- A sale that reflects a high level of professional expertise in the design of the transaction, and that tested creativity and skill in completing the transaction; or
- A sale of strategic or legal significance and impact (winning entries might focus on overcoming challenges to complete the sale, innovative financial engineering, and motivating agreement across multiple stakeholders)
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| Register Today for ASM! |
| ABI is pleased to announce the return of the Annual Spring Meeting April 12-22 — this year in a cutting-edge virtual format. Employing the same innovative platform that made last fall’s Insolvency 2020 event such an astounding success, this conference — always one of the most significant annual gatherings of bankruptcy and insolvency professionals in the country — will introduce a number of new and improved online
networking features.
This year, the Asset Sales Committee will be partnering with the Bankruptcy Litigation Committee to host a panel titled "Cautionary Tales in Asset Sales." This panelists will discuss Neiman Marcus (collusion), as well as regulatory and ownership issues that arise in asset sales leading to litigation. |
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