A July 2008 decision issued by the Ninth Circuit Bankruptcy Appellate Panel (the “BAP”), if adopted by other bankruptcy courts, has the potential to substantially alter the way bankruptcy assets are liquidated. In a one-two punch decision, the BAP held that the provision of a sale order authorizing the transfer “free and clear” of interests in the debtor’s property may be reversed on appeal even if the sale itself was final, there was no stay pending appeal, and the bankruptcy court found the buyer was a good-faith purchaser entitled to bankruptcy code Section 363(m) protection.
Facts
PW, LLC (the “Debtor”) entered into an agreement with the city of Burbank, California, to develop a mixed-use complex of luxury condominiums and retail space. The debtor’s agreement was conditioned, however, on the acquisition of 18 parcels of land by February. By the time of the debtor’s November 20, 2006, bankruptcy filing, the debtor had acquired 14 of the parcels and entered into a conditional agreement to acquire the remaining four. DB Burbank, LLC (“DB Burbank”), held a first priority lien on all of the debtor’s's assets, including the real estate, in the amount of approximately $40 million. Clear Channel Outdoor, Inc. (“Clear Channel”) held a junior lien on the debtor’s assets in the amount of $2.5 million.
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