Page 20 - US Bankruptcy Code Overview

> USE, SALE & LEASE OF PROPERTY OUT OF THE ORDINARY COURSE
Bankruptcy Court approval required for public auction and private sale of property out of the ordinary course of business: notice and hearing required. See 11 U.S.C. § 363(b).
- break-up fees.
- bid increments.
- transferee and employee liabilities: pension and COBRA. - credit bidding permissible by secured creditors.
Sales may be free and clear of liens, claims and other interests if:
- Applicable non-bankruptcy law permits;
- Non-debtor entity with such interest consents; or
- Interest is in bona fide dispute. See 11 U.S.C. § 363(f).
Liens and other interests of third parties attach to the proceeds of the sale. Private vs. Public Sales
- Both private and public sales are subject to court approval on notice and after a hearing on motion for approval of such sale.
- Public auction is effected through approval of the terms of a purchase agreement with a “stalking horse” bidder.
- Submission of bids on public auction and sale subject to “highest and best” offer.
- No auction process in private sale - interested parties may object and submit competing bids through objection process.
Asset Purchase and Sale Agreement
- Limited representations and warranties of debtor/seller - sale “AS IS, WHERE IS” court order approving sale provides protection.
- Transfer and stamp tax exemption under Bankruptcy Code if sale under plan of reorganization.
- Generally, limited survivability of representations and warranties of the debtor/seller due to debtor-in- possession status and discharge.
- Break-up fees and incremental bids subject to court approval - based on purchase price in “stalking horse” Purchase and Sale Agreement.
- In an auction - competing bidders must generally use substantially similar purchase agreements to that submitted by the “stalking horse” and approved by the bankruptcy court.
- Closing conditions include bankruptcy court order approving sale.
- Finding of “good faith” conduct by buyer in the court order protects seller from reversal or modification
of court order approving sale - validity of sale not affected. See 11 U.S.C. § 363(m). > UNITED STATES BANKRUPTCY CODE OVERVIEW | 17