Neil Herman on Asset Sales in Retail Industry Chapter 11 Bankruptcy Cases

In this Emerging Issues commentary, Neil E. Herman, a partner in the Bankruptcy and Financial Restructuring Practice of Morgan, Lewis & Bockius LLP, explains how asset sales play a significant role in nearly every retail bankruptcy case. A variety of asset sale issues that are common in bankruptcy cases are discussed. He writes:

Excerpt:

"Retail debtors are almost always in possession of extensive data and information about their customers, including but not limited to credit card information, demographic information, social security numbers, email addresses, home addresses, customer names, and sometimes detailed data on their customers' buying habits and preferences. Accordingly, any sale of a retail debtor as a going concern or of substantial assets (or of its customer lists as part of any sale of intellectual property) will implicate the Bankruptcy Code provisions designed to protect the rights of consumers and their personally identifiable information."

"As a general rule, all federal, state and local regulatory rules continue to apply to a debtor in chapter 11 and to a buyer of assets from a debtor. Therefore, retailers who are subject to federal, state or local laws, license or permit requirements or other rules must usually continue to comply during the chapter 11 case and any buyer of the retail debtor's assets must obtain its own approvals and/or license or permits from the particular governmental agency."

"Provided that the conditions set forth in sections 363 and 365 of the Bankruptcy Code are satisfied, a debtor has the power to sell assets outside of the ordinary course of business (and to assume and assign unexpired leases and executory contracts) to third parties who may be willing to pay for such valuable rights and assets."

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Neil E. Herman is a partner in the Bankruptcy and Financial Restructuring Practice of Morgan, Lewis & Bockius LLP, in New York City. Mr. Herman has represented debtors, as well as financial institutions, creditors' committees, trustees and creditors in out-of-court restructurings and in bankruptcy matters. In addition, he has extensive expertise in representing landlords, real estate developers and shopping center owners in bankruptcy matters. A substantial portion of his practice involves representing buyers of assets out of bankruptcy.