How to Sell a Business in Chapter 11 Bankruptcy
U.S. citizens filed more than 117,000 bankruptcies in February 2010, 13 percent more than the same period in 2009 and 14 percent more than in January, according to a recent article in Business Week magazine.
However, while consumer bankruptcies increased dramatically in February, chapter 11 filings--submitted most often by a larger company looking to reorganize its debt or liquidate its assets--increased just 1 percent from Feb. 2009 to Feb. 2010, and decreased 18 percent from January 2010.
When you sell your bankrupt business, you'll follow set procedures established by U.S. bankruptcy courts for companies--the bankrupt company is referred to as the "debtor" or "debtor-in-possession" in legal documents and proceedings.
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Things You'll Need
- Accounting statement of the company you wish to purchase
- Identities of prospective purchasers
- List of all assets to be sold
- List of secured creditors
- List of unsecured creditors
- List of the company's stockholders, if applicable
- Purchase agreement between bankrupt business and prospective purchaser
- Court-approved disclosure statement of the sale's terms and conditions
Instructions
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File a "motion of approval," asking the court to approve the proposed terms and conditions of the sale while your company remains under Chapter 11 bankruptcy protection.
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You and your opponents argue your positions to the court. This step is a legal process known as "notice and a hearing," which was set forth in the U.S. Bankruptcy Code to allow interested parties to to argue their position in front of the bankruptcy judge regarding the official motion of approval. The bankruptcy judge considers each side's argument and either approves the sale of your business while it remains in Chapter 11 bankruptcy protection, or denies the sale of your bankrupt company.
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Following your argument during the notice and a hearing process, you need to decide if the motion of approval, as outlined by the bankruptcy court, is fair and equitable, and whether or not the bankruptcy judge's ruling on the sale of your business meets your expectations.
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Divide the proceeds from the sale of your business among the secured creditors listed in the official bankruptcy document you filed with the court.
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Once the court has agreed to the division of the proceeds, and you have received the funds from the prospective buyer, you have completed all of the steps required for selling a business in Chapter 11 bankruptcy.
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Tips & Warnings
Although Chapter 11 bankruptcy laws do not require an in-person hearing, typically a judge gives each side an equal opportunity to present its argument.
Completion of a 363 sale can take a few days or a few months--it depends, for example, on the strength behind the opposition to the sale and how many individual purchasers are considering acquiring the bankrupt company's assets. Generally, however, 363 sales take a few weeks to complete.
If additional proceeds remain after the secured creditors are paid, that money is divided among the unsecured creditors and other claimants, according to the statutory provisions of the U.S. Bankruptcy Code.
In theory, courts typically grant opponents of the sale as many as 20 days to respond to the motion of approval, depending on the particular bankruptcy court and the bankruptcy procedures of the state where you filed for chapter 11 protection. In practice, however, courts frequently decide to shorten the response period, according to an article published on the Ohio Practical Business Law blog.
Industry observers say the sale of a bankrupt company's assets can be accomplished more quickly through a 363 sale than through a more traditional reorganization plan; 363 sales only require a bankruptcy judge's approval, whereas a reorganization plan first must be approved by a majority of the bankrupt company's creditors, and meet other legal requirements as well, before the sale of any assets are approved for the business in chapter 11.
The official order that approved the sale of your bankrupt business can be appealed to the applicable district bankruptcy court, or to the corresponding state bankruptcy appellate panel for the U.S. Circuit Court of Appeals, if one exists in the state that claims jurisdiction over the case.
References
Resources
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