DealLawyers.com Blog

Section 363 sales are a common way to acquire assets out of bankruptcy.  They’re a popular alternative for debtors who don’t want to go through a reorganization and provide buyers with the ability to acquire assets at an attractive price “free and clear” of claims against the debtor. If you have a client considering the Section 363 alternative, this Troutman memo provides a brief overview of the process, from the initial marketing to the sale hearing and closing.  This excerpt addresses due diligence & bid submission procedures:

After the court approves the bid procedures, notice is given to potential bidders of the deadline to submit their bid. The length of time from entry of the order approving the bid procedures to the deadline to submit bids varies from case to case and is dependent on such factors as pre-petition marketing efforts, the deteriorating nature of the assets, etc. The debtor will also establish a data room for potential bidders.

Section 363 sales are typically on an “as-is, where-is” basis with limited representations and warranties, indemnity rights, or other post-closing recourse for buyers, so it is critical that a potential buyer carefully conduct due diligence on the assets and liabilities of the company. During this period, the debtor will also serve notice on contract and lease counterparties regarding such issues as cure claims and objections deadlines related to contract issues and the sale.

Potential buyers thinking about the Section 363 alternative should also review this Proskauer memo addressing a recent Delaware federal court opinion imposing successor liability on a Section 363 purchaser for obligations under the debtor’s labor agreements notwithstanding a bankruptcy court order providing that the purchaser acquired the debtor’s assets free and clear of any claims.

– John Jenkins