Over the past decade or longer, bankruptcy practitioners have witnessed the rise of the 363 sale bankruptcy case in lieu of the more traditional Chapter 11 “stand alone” or “bootstrap” reorganization. Some credit the surge in 363 sale cases to debtor-in-possession financing deals, particularly those with existing prepetition lenders, where the lender sets tight sale deadlines or other similar milestones. These provisions can take away a debtor’s flexibility to explore other restructuring options. Others point to the speed and efficiency of a 363 sale—important benefits to a debtor-in-possession who may be in extreme financial distress and may not be able to survive for an extended period of time. This speed, coupled with the company’s distress, is enticing to potential purchasers who are bargain hunting.
A bootstrap plan, by contrast, allows a current owner with institutional knowledge to continue owning and running the business, while paying the creditors a distribution over time. Typically, bootstrap plans involve the debtors investing “new value” back into the company in order to obtain approval of the bankruptcy plan.
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