Benefits of Conducting a 363 Sale of Assets in a Chapter 11
A debtor-in-possession (DIP) in a Chapter 11 bankruptcy proceeding can seek court approval to sell some or all of the company’s assets at auction through a process known as a 363 sale. Named after Section 363 of the U.S. Bankruptcy Code, it facilitates the efficient liquidation of assets, often resulting in higher recovery values and a more rapid resolution compared to traditional sales methods.
One of the primary benefits of a 363 sale is that it allows the assets to be sold free and clear of all liens, claims, encumbrances and other interests. This clean slate is attractive to potential buyers, as they can acquire the assets without being burdened by the debtor’s past liabilities. This can lead to higher bids and a more competitive auction process, ultimately maximizing the value recovered from the sale.
The 363 sale process is generally more streamlined and faster than other asset liquidation methods. Traditional sales in bankruptcy can be lengthy and fraught with procedural complexities, but a 363 sale, with court oversight and approval, can expedite the process. This is particularly beneficial for businesses in financial distress, as it provides a quicker resolution and a path to recover some value from the assets.
A 363 sale offers the debtor-in-possession more control over the sale process. The DIP can negotiate with potential buyers, set bidding procedures and select a “stalking horse” bidder to set the baseline price for the auction. The stalking horse bidder is often incentivized with certain protections, such as breakup fees, to encourage their participation. This arrangement helps to establish a minimum price for the assets and can stimulate further competitive bidding.
For creditors, a 363 sale provides a level of transparency and assurance that the assets are being sold at fair market value. Since the sale is conducted under bankruptcy court supervision, creditors can be confident that the process is equitable and that their interests are being considered. Additionally, the proceeds from the sale are distributed according to the priorities established in the Bankruptcy Code.
To initiate a 363 sale, the debtor-in-possession must file a motion with the bankruptcy court, requesting permission to sell the assets. This motion must include a detailed description of the assets to be sold, the terms and conditions of the proposed sale, and the rationale behind the decision to sell the assets through an auction. The court will then hold a hearing to evaluate the motion, during which interested parties, including creditors, can voice their support or objections.
A skilled Chapter 11 lawyer can help you decide whether a 363 sale is appropriate for your business situation and can prepare a well-founded case for gaining court approval.
The Law Offices of Michael Jay Berger is one of Southern California’s busiest bankruptcy law firms, with 12 locations in the region. If your business is financially distressed and needs relief from debt, contact us online or call 310-271-6223 to schedule a free initial consultation.
