All too often, attorneys misunderstand (or worse, disregard) the importance of local rules in numerous contexts —particularly in the area of asset sales. Rather than they be merely an afterthought, practitioners should be encouraged to make the local rules a jumping-off point when seeking to conduct a sale through § 363 of the Bankruptcy Code. Before launching into what can often become an extended, complicated and costly sale process, a quick check of the applicable Local Rules may provide critical guidance and requirements to streamline the sale process, leading to optimal results.
Background
As just one example, the District of Arizona has numerous rules that should be consulted when embarking upon the path to an asset sale. Commencing in 2015 and culminating in 2018, the District of Arizona recently undertook a comprehensive review and revision of the Local Rules of Bankruptcy Procedure. One of the products of the extensive multi-year efforts on the part of a diverse Local Rules Committee (including members of the bench, bar, chambers staff and the clerk’s office) was an updated Rule 6004-1 outlining the specific requirements that must be included in any sale notice for sales not in the ordinary course of business in excess of $2,500.[1] This article will examine the impact and interplay of various local rules in the context of asset sales, hopefully serving as a reminder that local rules are important, they do matter, and they should always be consulted no matter the jurisdiction.
Ariz. LR Bankr. P. 6004-1: Sales Not in the Ordinary Course of Business
The Arizona Local Rules of Bankruptcy Procedure (Ariz. LR Bankr. P.) go well beyond the “basics” of Fed. R. Bankr. P. (FRBP) 6004, while at the same time allowing for an uncontested sale to proceed expeditiously without the need for a hearing if the local notice procedures are employed.
For example, pursuant to Ariz. LR Bankr. P. 6004-1, a sale notice must (if applicable) include the following information:[2]
(1) the time and place of the sale;
(2) the name or representative’s name of the prospective buyer;
(3) whether the prospective buyer is an insider;
(4) a detailed description of the property or interest to be sold;
(5) all entities known or believed to hold interests in the property to be sold;
(6) if the sale is free and clear of liens, claims or interests, a description of such liens, claims or interests, including copies of all applicable public record searches (e.g., title reports, secretary of state records);
(7) the terms and conditions of the offer;
(8) whether the property may be viewed, and if so, when and where;
(9) whether the offer is subject to higher and better bids;
(10) the date by which the objections must be filed and served;
(11) whether any compensation will be paid from the sale proceeds, to whom, and whether the recipient is an insider;
(12) whether there is an appraisal of the property and the value of the property stated therein; and
(13) whether any motions for stay relief have been filed and by whom.
The sale notice must be served in accordance with FRBP 6004 and also to “potential buyers and/or their brokers, the title company where escrow has been opened, and any parties asserting liens, claims or interests in the property and their counsel.”[3]
While extensive, the list of required information should be instructive for any practitioner setting out to undertake an asset sale, serving as a reminder and double-check on various issues and information that could become critical during the sale process.
Ariz. LR Bankr. P. 9013-1(k): Negative Notice
Often, a party might have a pretty good idea whether a sale outside the ordinary course is going to be contested or otherwise require further hearing before the court. However, in some circumstances an expedited sale process may be beneficial for the court and parties. The Arizona Local Rules contemplate and allow for this type of efficient process, permitting a 21-day negative notice procedure for certain asset sales.[4]
Accordingly, a moving party may issue and serve a compliant bar date notice and, assuming that no objections are filed, proceed with an order without the need for further hearing.[5] Utilized in the right circumstances, this negative-notice process can streamline the sale process, saving the court and parties precious time and expense.
Conclusion
For the unwary practitioner, the economical and efficient negative notice bar date process may be entirely overlooked if one is unfamiliar with the applicable local rules. Similarly, an equally unfortunate circumstance may arise if a practitioner fails at the outset to follow the requirements for a conforming sale notice, which could lead to delayed or vacated hearings, additional notice periods, and possibly even denial of the sale request altogether. These unfortunate outcomes could and should be avoided by a simple check of the applicable local rules. When it comes to asset sales, check early, review often, and make certain to follow the local rules!
[1] Another important factor to keep in mind is that various local rules and procedures may apply only in certain defined circumstances; see, e.g., Ariz. LR Bankr. P. 9013-1(k) discussed infra.
[2] Various jurisdictions require additional or alternative disclosures, with a frequent focus on bid protections, sale commissions or break-up fees. Regardless of which jurisdiction, practitioners should endeavor to become familiar with the local rules for all purposes, and not just asset sales.
[3] Id.
[4] See Ariz. LR Bankr. P. 9013-1(k)(1)(A):
(k) Relief Possible on 21-Day Bar Date Notice.
(1) In addition to the bar date procedures established by these Local Rules, unless ordered otherwise, the moving party may use a 21-day bar date notice for:
(A) Motions to approve § 363 sales other than real property, and other than under Code § 363(h);
…
[5] See Ariz. LR Bankr. P. 2002-2(c) (“Upon expiration of the time stated plus any additional days required under the rules for service, and if no objections have been filed, the moving party may file a certificate of service and of no objection and lodge an order granting the relief requested. The lodged order must conform to the relief requested in the motion. If an objection is filed, the movant must obtain a hearing date, serve notice of the hearing on all parties entitled to notice and file a certificate of service.”).