A company should be able to reorganize through a value-maximizing sale in chapter 11, but those sales should not include quick fire sales that offer little opportunity for a robust auction or the need to use chapter 11 tools to enhance value in that auction, according to Prof. Michelle Harner’s post today on the Credit Slips blog. Chapter 7 is already well suited for such fire sales, according to Harner. Under current practice, it is possible in some jurisdictions to file a chapter 11 case and close a sale of substantially all of the debtor’s assets in 30 to 60 days. That sale often cleanses the assets of all interests, liens, and claims; implements broad releases for not only the purchaser but also other parties in the case; and dictates the distribution of at least a significant part — if not all — of the sale proceeds. In essence, it is the entire chapter 11 case. Creditors are left with no opportunity to explore alternatives for maximizing the value of the debtor or to participate in value accretion that may have occurred during the case. The ABI Chapter 11 Reform Commission’s Final Report recommended a statutory moratorium on going concern sales and financing provisions that would require expedited sales. Although the 60-day moratorium may not be long enough, it would at least allow the U.S. trustee to form a committee and provide parties some opportunity to test the terms and timing of the proposed sale.
To read the Chapter 11 Reform Commission’s Final Report, please visit http://commission.abi.org.
