Companies in financial distress are evaluating asset sales to save a business in stress or money to keep people employed. Under Bankruptcy Code Section 363(b), an asset sale may be conducted outside of a reorganization plan.
A bankruptcy sale has the benefits of transferring title to assets clear and free of any interest in the asset sold, such as liens, claims and encumbrances, leaving the buyer with clear title.
A bankruptcy sale of property may avoid the risk of successor liability for personal injury claims. For instance, someone may have a claim against the property if the person slipped and fell on the premises.
Leases and executory contracts are easier to transfer in bankruptcy, because transfer restrictions such as anti-assignment clauses, are not enforceable in bankruptcy. A debtor can reject unprofitable executory contracts, letting the purchaser choose which contracts to keep.
Sales outside of bankruptcy can be challenged under New York state law as fraudulent conveyances when creditors believe the sale price is inadequate. The risks of fraudulent conveyance are done away with when the property sale is done under bankruptcy court supervision. This is when the bankruptcy court approves the sale agreement, providing the buyer protection from having the property taken away with a fraudulent conveyances claim.
A business that is insolvent has a fiduciary duty to its shareholders and creditors to maximize the value of the company’s assets. Once the debtor and the first potential purchaser execute an asset buy agreement, the debtor will file a motion to (1) approve the bidding procedures; (2) set and notice a hearing date and objection deadline relating to the proposed bidding procedures; (3) set and notice the time, place, and date of the auction sale; (4) approve the proposed sale to the first bidder; (5) set and notice the date and time of the hearing to approve the sale and the assignment and assumption of executory contracts and leases; and (6) set the deadline for objections to the sale and the assignment and assumption of executory contracts and leases.
363 asset sales may get complicated for both buyer and seller. Contact an experienced New York bankruptcy attorney for a consultation on the administration of a bankruptcy estate.