One of the greatest advantages inherent in the administration of Chapter 11 bankruptcies is the ability to conduct court-supervised asset sales, which enable buyers to purchase selected assets while remaining insulated from the disputes and complexities that can accompany the distribution of the proceeds. In Chapter 11, the buyer is afforded the protections of the bankruptcy process, and the controversies of distribution are relegated to resolution through the debtor’s negotiations with creditors over a Chapter 11 plan.
There has been some doubt as to how the orderly approach of §363 asset sales would operate in the face of multiple insolvency proceedings and locally powerful regulators. The success of the sale process under §363 is premised upon the breathing space achieved through the automatic stay, which arises, pursuant to U.S. Bankruptcy Code §362(a), upon the filing of a bankruptcy petition. This fundamental protection prohibits “all entities” from commencing or continuing virtually any action or proceeding based on prepetition activity against the debtor, or from attempting to recover on a claim against the debtor that arose prepetition.
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