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by Felton E. Parrish, Jo Ann J. Brighton & James E. Morgan
K&L Gates LLP, Charlotte and Chicago
The astounding bankruptcies of U.S. corporations bearing such household names as General Motors, Chrylser, and Lehman Brothers have made nearly commonplace the concept of the sale of entire companies in bankruptcy, often referred to as 363 sales. The term "363 sale" refers to a sale of a debtor's assets authorized under section 363 of the Bankruptcy Code. Sales of assets under section 363 can range from the sale of office furniture by a chapter 7 trustee or a sale of substantially all assets of a chapter 11 debtor. Generally, when bankruptcy practitioners refer to a "363 sale" they are referring to a sale of substantially all of the assets of a chapter 11 debtor.
As the practice of selling substantially all of the assets of a chapter 11 debtor has become more common, the sales have started to follow a typical pattern. The debtor will enter into an asset purchase agreement with a proposed purchasers referred to as a stalking horse bidder. A process will be approved for other potential purchaser to submit bids, and, if other bidders come forward, an auction will be held. After the completion of the auction, the bankruptcy court will conduct a hearing to consider whether the sale to the successful bidder should be approved.
This chapter provides a practical guide to 363 sales, identifying and explaining the legal issues raised by such sales. It starts by describing the benefits leading a buyer (or seller) to choose a 363 sale over an out-of-court asset sale and contrasting a 363 sale with a plan of reorganization. It then explains the legal standard that the seller must meet to sell all, or nearly all, of its assets in a 363 sale and the requirements for such a sale to be "free and clear" of all liens. This chapter next discusses the role of secured creditors in the 363 sale process, including the unique issues that arise when such creditors are co-lenders in a loan facility.
The chapter also pays special attention to the actual process of 363 sales. Included in this section is a specific step-by-step explanation of the legal rules and procedures surrounding an auction in bankruptcy court, from the initial marketing phase to the final sale order. This section also describes the various confidentiality and sale agreements, and the protections parties seek to include in those agreements. The Practice Aids to the chapter includes a form of confidentiality agreement and common provisions regarding bidding procedures, executory contracts, and sale orders
This chapter explains how other constituents are affected by 363 sales, such as parties to executory contracts with the debtor and unsecured creditors. In addition, this chapter addresses the finality of 363 sales and appeals from orders approving such sales. Finally, this chapter discusses the limits of successor liability for buyers in 363 sales.
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