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Selling the debtor's assets in bankruptcy

Companies who find themselves in a bankruptcy proceeding often decide to sell a portion of their assets to generate cash that can be used to pay creditors' claims. Some debtors even sell all or a substantial portion of their businesses while in bankruptcy. For buyers of such assets, the bankruptcy code provides a powerful incentive: such sales generally result in the transfer of assets free and clear of all liens and encumbrances. The starting point for such sales is Sec. 363 of the bankruptcy code.

Section 363 allows the trustee to sell assets of the debtor free and clear of any interest if the sale satisfies the conditions in Sec. 363(f), which include obtaining the consent of the debtor, showing that applicable non-bankruptcy law permits such sales free and clear of other interests, and the sale price exceeds the aggregate value of all liens on the property. The advantage of such sales for purchasers is the statutory guarantee that all liens and claims will be resolved in bankruptcy court and that the asset is transferred free and clear of such claims. Sec. 363 sales require notice to all creditors and approval by the court via motion.

Another method selling the assets of the debtor is the use of a so-called "plan sale." Under Chapter 11, most debtors are interested in restructuring their business and debt burden to facilitate continued operations. Occasionally, a debtor may decide to sell a significant portion of its assets, such as an entire operating division, as part of its plan of reorganization. Such sales have the same effect of transferring assets free of claims and liens, but the sale must go through the entire process of presenting the plan to creditors and obtaining the court's approval.

Some sales of estate property are relatively simple, involving a single asset and a single buyer, while others can be extremely complex, involving more than one asset and numerous claims and liens against the property. Anyone who is considering bankruptcy and the potential sale of property may wish to consult a knowledgeable bankruptcy attorney for advice on the mechanics of Sec. 363 sales and plan sales.

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