Sales of a debtor's assets, either pursuant to §363 of the Bankruptcy Code or through a confirmed Chapter 11 plan of reorganization, have become increasingly common in recent years and are generally viewed as an efficient and effective way to monetize a debtor's assets and, under the appropriate circumstances, to maximize the value of its estate. When a sale process is used in a bankruptcy case of a debtor that is a not for profit (NFP) entity, however, there are issues other than simply maximizing value for creditors that must be taken into consideration. When choosing a purchaser, NFP debtors can and should consider, among other things, whether such purchaser has the ability to obtain the necessary regulatory approvals under applicable state law, the purchaser's commitment to continuing the debtor's charitable mission, and how the public interest will be served by the sale transaction. Similarly, a health care NFP such as a hospital or long-term care facility should consider the proposed purchaser's ability to continue providing quality care (including indigent care) to its patients or residents after the sale is consummated.
Compliance With Applicable Nonbankruptcy Law. Federal bankruptcy law typically trumps contrary state law and often allows certain transactions to occur in bankruptcy that would not be able to occur outside of bankruptcy. Certain amendments to the Bankruptcy Code in 2005, however, made transfers of assets of an NFP debtor in bankruptcy expressly subject to compliance with applicable nonbankruptcy law, including the laws of the relevant state(s) with jurisdiction over the debtor and its assets. Specifically, §§363(d) and 541(f) of the Bankruptcy Code provide that all sales of assets of an NFP debtor in a bankruptcy case must comply with applicable nonbankruptcy law.1 Section 1129(a)(16) of the Bankruptcy Code contains a similar requirement that transfers of assets of an NFP entity pursuant to a Chapter 11 plan comply with all applicable nonbankruptcy law.2
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