Asset Purchases in Bankruptcy
provides for the sale of property of a
Chapter 11 debtor in bankruptcy. Through
this process, parts of a business or an
entire enterprise may be sold. Innovative
practices have made such sales more
valuable to the reorganization of business
enterprises because bankruptcy courts
have, in recent years, become much
more receptive to traditional acquisition
techniques. These techniques, including
auctions, customary acquisition
agreements, use of financial advisers
and payment of break-up fees, have
sale process more efficient.
In addition, bankruptcy courts
can assure purchasers, under the
proper circumstances, that assets
may be purchased free and clear of
encumbrances and that successor
liability may be minimized, thereby
adding value to the assets being sold
by the debtor. Thus, these sales create
significant strategic and financial
opportunities for investors.
This article is intended to familiarize
readers generally with the landscape of
an otherwise fairly complicated process
involving the sale of assets of a debtor in
bankruptcy. It also highlights some of the
more important and easily misunderstood
issues faced by potential purchasers of
such assets.
adhered to in connection with the sale
of a debtor's major assets. In general,
however, bankruptcy courts will require
some sort of open bidding procedure,
often in the form of an auction, before
approving the sale of significant assets
of a debtor. The purpose of this process
is to ensure that the debtor's estate, and
thus its creditors, realize the greatest
return from the sale of the assets.
Bidding procedures may involve
a number of items, including setting
the auction date, specifying the assets
to be sold, establishing a break-up
increments (that is, the amounts by which
subsequent bids must exceed prior bids).
Any proposed bidding procedures must
ultimately be approved by the court,
after notice to interested parties and an
opportunity for parties with a pecuniary
interest (i.e., creditors) to be heard.
to purchase assets in a bankruptcy sale
process from a third party exploring
the marketplace in an attempt to gauge
interest. Generally, the first to bid is
known as the stalking horse bidder, and
while there may be an initial reticence in
bidding against yourself, there are some
distinct advantages to being the stalking
horse bidder.
If you, as the prospective stalking
horse bidder, make an acceptable offer
for the debtor's assets, you and the debtor
will likely enter into a letter of intent,
or possibly go directly to definitive
documentation by way of an asset
purchase agreement. It is important to
remember that it is generally not possible
to lock up the purchase prior to obtaining
approval of the sale from the bankruptcy
court. Usually, third parties will have
the opportunity to come to court on the
day the sale is scheduled for approval
and offer a higher purchase price. This
is more likely to succeed if the new offer
is on the same terms as the initial offer.
This notwithstanding, after the parties
have agreed to the terms of the deal, but
bankruptcy practice director at Estrella, LLC.
He has over a decade of experience handling
legal issues including Chapter 11, 12 and 13
reorganizations and Chapter 7 liquidations
(debtor, creditor and interested parties), out of
court work outs, troubled debt restructuring,
strategic financial legal consulting and complex
commercial litigation.
150 Tetuan Street
San Juan, Puerto Rico 00901
787.977.5090 Fax
phammer@estrellallc.com