During the volatile economic climate of recent years, expedited 363 sales have been favored over more traditional reorganizations under Chapter 11. The benefits of facilitating a quick sale under §363 of the Bankruptcy Code have often served as the impetus for many Chapter 11 case filings of large public companies. The use of expedited 363 sales prior to, or in place of, plan confirmation has generated much debate among the bankruptcy bench, bar and creditor groups. The competing tension at the heart of this debate is whether a fast track sale prior to the filing of a plan is justified in light of the resultant impact on well-established procedural and substantive rules designed to address stakeholder due process and bankruptcy protections in bankruptcy. Notwithstanding this debate, however, bankruptcy courts throughout the nation have approved these types of sales in light of competent evidence of deteriorating asset values.
Section 363 of the Bankruptcy Code originally was enacted as a tool to allow debtors to shed unnecessary or burdensome assets in furtherance of their reorganization effort1 (although, at times, it did become a last resort for a failed struggling company). Following the 2008 financial crisis, many banks were reluctant or unwilling to provide post-petition financing, leaving many debtors with a lack of liquidity and few options other than a sale in Chapter 11—”free and clear of liens, claims and encumbrances” under §363 of the Bankruptcy Code. More recently, as the financial markets have begun to improve, debtors have been able to obtain post-petition financing; however, the terms have largely dictated the debtors’ bankruptcy exit strategy and the use of 363 sales in Chapter 11 have continued to rise.
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