Written by: Irve J. Goldman
Pullman and Comley LLP; Bridgeport, Conn.
An out-of-court workout technique sometimes employed by a distressed business and its secured lender is the so-called "friendly foreclosure." By this procedure, the debtor and its secured lender arrange for a voluntary repossession of the debtor's assets by the secured lender and a pre-determined and substantially contemporaneous resale of the assets to a newly formed corporation, all under the auspices of Article 9 of the Uniform Commercial Code (UCC).
Although there are variations, two common features of the friendly foreclosure are: (1) the old owners or officers of the repossessed debtor often hold equity interests, either directly or indirectly, in the newly-formed corporation and (2) the assets of the debtor are purchased by the newly formed corporation with a loan from the repossessing lender approximating the amount of its loan balance with the debtor and secured by the purchased assets. The net effect of the transaction is essentially to leave the lender's position undisturbed, while the unsecured creditors of the distressed debtor are left behind and its old owners acquire interests in a new corporation that has no unsecured debt.
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The Delaware Views from the Bench and Bar was held in Wilmington Del. on November 3, 2008. The American Bankruptcy Institute and the Delaware State Bar Association partnered to present the program, which helped attendees gain insight from the judges of Delaware bankruptcy bench as well as the leading bankruptcy practitioners.
Of particular interest to the committee was the “Views on 363 Sales” session, during which panelists discussed the growing acceptance of the use of Section 363 to sell a debtor’s business as a going concern. Laura Davis Jones of Pachulski Stang Ziehl & Jones LLP, Wilmington, moderated the panel, which included Hon. Kevin Gross of U.S. Bankruptcy Court, Wilmington, Hon. Brendan Linehan Shannon of the U.S. Bankruptcy Court, Wilmington, Scott L. Hazan of Otterbourg Steindler Houston & Rosen P.C., Wilmington, and Jeffrey S. Sabin of Bingham McCutchen LLP, New York. Click below to review the pertinent materials.
Views on 363 (pdf)
The Winter Leadership Conference will be held Dec. 4-6 in Tucson, AZ, at the Westin La Paloma. This year's conference will feature another great group of sessions and speakers. The Asset Sales Committee will hold a joint session on Saturday morning at 9:45 a.m. with the Finance and Banking Committee entitled "Competing Claims of Creditors in Connection with Sales of Assets under Section 363." Steve Falanga of Connell Foley LLP in Roseland, N.J. will moderate the panel, which will include Ana Maria Alfonso of Kaye Scholer LLP in New York, Roseanne Thomas Matzat of Hahn and Hessen in New York, and Geoffrey A. Richards of William Blair & Company in Chicago. Register online today!
