In this article from our Creditor’s Right Toolkit series, we discuss the process of Section 363 sales. A Section 363 bankruptcy sale, as defined by the Bankruptcy Code, involves the sale of a company’s assets, which the Bankruptcy Court approves if the debtor can demonstrate a “substantial business justification.”

The process generally follows these steps:

  1. Marketing of Assets: The debtor markets its assets for sale, often with an investment banker’s assistance. A stalking horse bidder is usually selected to set the minimum bid. An asset purchase agreement (APA) is prepared, which serves as a baseline for other bidders.
  2. Approval of Bid Procedures: The debtor files a motion for approval of the stalking horse bid, sale time, bid submission requirements, and auction rules. The bid procedures also establish the deadline for objections to the sale of the debtor’s assets.
  3. Due Diligence Period and Submission of Bids: Following the court’s approval of bid procedures, potential bidders are notified of the bid submission deadline. The debtor establishes a data room for potential bidders. Due diligence is crucial as Section 363 sales are typically on an “as-is, where-is” basis with limited post-closing recourse for buyers.
  4. Auction: The debtor announces the leading bid and auction proceedings. The auction ensures a fair price for the assets. At the auction’s conclusion, the highest or best offer is announced.
  5. Sale Hearing and Closing of the Sale: The sale hearing usually occurs within a few days of the auction. The Bankruptcy Court then enters an order approving the sale of the assets to the winning purchaser. Sales often close within a day or so after obtaining court approval.

Section 363 sales can move quickly and offer many advantages for debtors, creditors, and potential purchasers. However, they can also affect certain parties’ rights, so it’s crucial for creditors to pay careful attention to any sale notices and consult with counsel as necessary. Read the full article here.