In re BlackJewel, L.L.C., et al.: The Success and Limitation of Extremely Expedited Sale Processes

As the pace of chapter 11 cases quickens and the time frames within which theyare filed, administered and closed become condensed, so too do the issues that may arise with accelerated asset sales under § 363 of the Bankruptcy Code. Although Bankruptcy Rule 2002(a)(2) requires at least 21 days’ notice of “a proposed use, sale, or lease of property of the estate other than in the ordinary course of business,” that period may be shortened for “cause.” Further, to pass the “business judgment” test imposed by courts to evaluate sale processes under § 363 of the Bankruptcy Code, any proposed sale process must, among other things, include proper exposure to the market and accurate and reasonable notice to all parties in interest.[1] Proper exposure to the market frequently imposes certain limits as to how fast a sale process can be conducted. Nevertheless, in certain instances where a debtor is a “melting ice cube” and the value of the debtor is rapidly declining, an asset sale under § 363 of the Bankruptcy Code may be approved on an incredibly expedited timeline.

Recently in the In re BlackJewel L.L.C., et al. bankruptcy case, the U.S. Bankruptcy Court for the Southern District of West Virginia approved one of the fastest sale-procedure timelines since the 2008 financial crisis and the collapse of Lehman Brothers.[2] That case involved the rapid filing of a coal mining company with significant operations across the U.S.[3] There was virtually no pre-planning before the commencement of the bankruptcy case, the debtors had negative cash flow and required debtor-in-possession financing to operate, and an initial delay in the approval of debtor-in-possession financing resulted in, among other things, workers not being on hand to put out a fire that broke out at one of the debtors’ mines. Ultimately, when debtor-in-possession financing was approved, it was a series of short interim orders that caused the debtors to seek approval of an incredibly expedited sale process.[4]

On July 25, 2019, at 3:43 a.m. the debtors filed their motion to approve procedures for the sale of substantially all of their assets.[5] Later that same day, the bankruptcy court conducted a hearing on the sale-procedures motion, which was continued to the morning of Friday, July 26, 2019, when the motion was granted and a sale-procedures order was approved.[6] A stalking-horse purchaser was approved for certain of the debtors’ mines in the Western U.S., but there was no stalking horse for the debtors’ mines in the Eastern U.S.[7] Bids were due within five days on July 31, 2019; an auction was scheduled for August 1, 2019; a hearing to approve the sales was scheduled for Saturday, August 3, 2019; and the sale was scheduled to close at the beginning of the following week.[8] There were multiple bids for various of the debtors’ assets, which resulted in the auction being extended throughout August 1, 2019, and into Saturday August 3, 2019.[9] The debtor announced multiple winning bidders for different lots of assets.[10] The hearing to approve the sales was conducted on August 5 and 6, 2019, but the orders approving each of the multiple bidders were actually entered over the course of over a month, as parties had not yet finalized all of the terms and documents of their sales by the sale hearing.[11]

To the credit of the parties and professionals involved, this expedited sale prevented the liquidation of the debtors and facilitated a process whereby there was competitive bidding on certain of the debtors’ assets. But while that success should not be discounted, the expedited sale process also demonstrated the dangers of quick sales. The auction and sale process resulted in confusion on which assets were being purchased by which buyer, many of the sales did not close for weeks or over a month after the sale order was entered, and there was even litigation after entry of the sale orders between the buyers over which assets they purchased. There is also the lingering question of whether a longer marketing process would have resulted in higher sale prices.

A takeaway from BlackJewel is that in truly exceptional circumstances, an incredibly quick asset sale under § 363 of the Bankruptcy Code can be approved and can have positive results. However, in quick sales tremendous effort is necessary to ensure that the assets being sold are clearly defined and to prosecute closings.