In re Gulf Coast Oil Corp.

In re Gulf Coast Oil Corp.

 
Eric English, of King & Spalding, looks at a bankruptcy courts rejection of a request to approve a 363(b) sale. Section 363 sales have never been more popular, and the decision in In re Gulf Coast Oil Corp. is significant because it demonstrates the narrow approach some courts favor, despite existing case law of a more expansive nature. As Mr. English notes, the decision will perhaps encourage the Fifth Circuit to revisit the issue.
 
Mr. English writes: In In re Gulf Coast Oil Corp., 2009 Bankr. LEXIS 313 (Bankr. S.D. Tex. Feb. 11, 2009, the Bankruptcy Court for the Southern District of Texas denied the debtors' motion to sell all of their assets pursuant to section 363(b) of the Bankruptcy Code. The opinion is notable primarily for its thorough discussion of Fifth Circuit precedent, its attempt to provide a framework for considering section 363 sales by identifying thirteen relevant factors, and its arguably narrow interpretation of the applicable legal standard.

The prevalence of sales under section 363 of the Bankruptcy Code involving all or substantially all of a debtor's assets is well documented. The popularity of such sales is unsurprising given section 363's obvious advantages over filing and seeking approval of a disclosure statement and reorganization plan. Because section 363 sales typically are faster, less expensive and provide the debtor more flexibility than obtaining approval of a plan, the popularity of section 363 sales shows no signs of diminishing.

Section 363 sales can raise a number of issues, but no issue is more important than the familiar threshold question of whether a court will permit the sale of all or substantially all of a debtor's assets in the first place. Section 363(b) provides that a debtor in possession after notice and a hearing may use, sell, or lease, other than in the ordinary course of business, property of the estate. This language does not address whether all or substantially all of a debtor's assets may be sold pursuant to section 363, and that question has been left to the courts. Many courts have recognized that such sales are permitted by section 363 when the debtor is able to articulate a legitimate business purpose. This standard generally has been adopted by the Fifth Circuit, although few Fifth Circuit opinions have directly applied it. And despite the widespread acceptance of the legitimate business purpose test, some courts remain hesitant to approve section 363 sales of all or substantially all of a debtor's assets absent compelling or special circumstances.
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