The Pros and Cons of Section 363 Asset Sales as Part of Chapter 11 Bankruptcies

By Nancy L. Kourland

As a Senior Associate at Rosen & Associates, P.C. I have experience in numerous aspects of Chapter 11 reorganizations, including adversary proceedings prosecution and defense, reorganization plans disclosure statements, appeals, and asset sales. The two major events in any Chapter 11 case are confirmation of a reorganization plan and sale of major assets. Selling assets occurs under Section 363 of the Federal Bankruptcy Code and has evolved since the Code’s formulation in 1979 to constitute a viable way of restructuring, rather than reorganizing. A sale expedites a bankruptcy court’s separation of past fiscal issues from future prospects, avoiding an often complex and drawn-out process of reorganization plan confirmation.

While the 363 asset sale route may at first glance appeal to debtors and creditors alike, deciding whether to pursue this route is not always easy. Certain fundamentals must be in place to make a 363 sale desirable, including the possibility of consensual restructuring, an asset purchaser on the horizon, and the distressed business maintaining a minimum threshold of resources to move forward post-bankruptcy. In some cases, existing liabilities may be significant, making a 363 sale a poor choice, and corporate governance issues may restrict the ability to sell the business at all. Shareholders may need to approve a sale, and attorneys and affected parties should weigh this, as well. Finally, a strategic assessment should be taken of the businesses’ value as a relatively intact and ongoing concern in comparison with its immediate value as a liquidated asset.

The key advantages of a 363 sale for a purchaser involve acquiring assets free of outstanding liens or other hindrances. In addition, a buyer of assets under Chapter 11 bankruptcy does not incur the liabilities that he or she would otherwise inherit. Other benefits involve avoiding shareholder approvals for asset sale and the ability of a purchaser to include favorable contracts and leases in the sale. The negative aspects of a 363 sale include potential unfavorable publicity about the company, issues of cost and time to complete the process, and possibility of competing bids. In addition, reorganization plans may offer greater flexibility in certain cases than would 363 sale restructuring. This reflects purchasers’ enhanced ability to draw up favorable plan terms under reorganization.

About the Author: A New York City Attorney with nearly a decade of bankruptcy law experience, Nancy L. Kourland earned her Juris Doctor from the New York University School of Law.

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Nancy Kourland

New York-based Attorney Nancy L. Kourland currently serves as a Senior Associate at Rosen & Associates, P.C., where she often represents debtors and creditors in workouts and chapter 11 cases. With extensive experience in complex legal research and writing, Nancy L. Kourland handles prosecution, appeals, asset sales, disclosure statements, and claims administration. Additionally, she maintains regular contact with clients and other counsel, while also focusing on bankruptcy and district court appearances. Prior to earning her Juris Doctor, Nancy L. Kourland attended Barnard College in New York, where she studied ancient studies and Latin. In 1984, she graduated magna cum laude with a Bachelor of Arts, earning many accolades, including consistent placement on the dean’s list and departmental honors. She then enrolled in the New York University School of Law. While there, she joined the staff of the Journal of International Law and Politics, functioning as both a staff member and an Articles Editor. Additionally, Nancy L. Kourland served as a Research Assistant for a year as well as a Teaching Assistant for a class called Civil Procedure. After graduating law school in 1987, Nancy L. Kourland joined the firm of Kronish, Lieb, Weiner & Hellman, LLP as an Associate in the bankruptcy department, where she garnered experience with chapter 11 cases. She held similar roles with Levin & Weintraub, Crames & Edelman and Kramer, Levin, Kamin, Nessen & Frankel. In 2008, she joined Satterlee Stephens Burke & Burke as a Contract Attorney and represented clients in the cases of Tricom, S.A, CardSystems Solutions, and Lehman Brothers Holdings, Inc. In addition to practicing law, Nancy L. Kourland contributes her time to the Central Park Conservancy and the Carnegie Hill Neighbors, an organization dedicated to keeping the Carnegie Hill neighborhood a clean and satisfying place to live. She also donates to New York’s public radio station, WNYC, and the Public Broadcasting Service (PBS).

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