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Some cases really should not be all that difficult. However, when judges choose to divorce statutory text completely from any reference to underlying legislative intent and long standing commercial practice, inexplicable results follow. The recent Third Circuit Court of Appeals decision in Philadelphia Newspapers that prevented secured lenders from credit-bidding their claims stands as a quintessential example of the anomalous results that can transpire from the “plain meaning” mode of statutory interpretation.
Philadelphia Newspapers LLC and its related debtor entities, as debtors and debtors-in-possession (the debtors), proposed a plan of reorganization that included, among other things, the sale of substantially all of their assets by public auction pursuant to §363 of chapter 11 of title 11 of the U.S. Bankruptcy Code.
In these unprecedented times, fast-track sales of troubled companies are prevalent across a wide range of industry sectors. With traditional M&A, there are a variety of options available to companies seeking to restructure their businesses, but there are no guarantees that a transaction will take place. Today, an aura of fatigue looms over the negotiating process, forcing interested parties to increasingly gravitate toward a sale process that is marked by a compressed transaction schedule and, most notably, predicated on a date-certain event.
Since companies are increasingly finding themselves in distressed situations, here is a simple opportunity to act upon that often yields significant dividends: Invest in understanding intellectual property (IP). The IP of an entity needs to be understood as an important value driver for its business and a potent vehicle to increasing potential recovery. Understanding the underlying value of patents and trademarks in a distressed situation also helps guard against being criticized in the role as a fiduciary and/or advisor.
With a substantially increasing number of chapter 11 cases filed ending up in a sale pursuant to Bankruptcy Code §363, bankruptcy practitioners are now essentially required to develop an understanding of the parameters of credit bidding under §363. One specific situation arising in many §363 sales involves a secured lender “credit bidding” its debt, thereby attempting to become the owner of the collateral or, at the very least, serve as the stalking-horse bidder.
In virtually every bankruptcy situation today, the question of intellectual property-identifying, valuing and disposing of-has become of serious importance. We provide an overview of how to identify intellectual property (IP) and intangible assets and how to group those components into bundles of discreet value.
In late August 2008, Judge Allan L. Gropper authorized the debtors in the Steve & Barry's retail chapter 11 cases to sell substantially all of their assets (the sale) to BH S&B Holdings LLC, (BH S&B), including scores of real property leases and designation rights for dozens of other real property leases. In re Steve & Barry's Manhattan LLC, Case No. 08-12579-ALG, Docket No. 628 (Bankr. S.D.N.Y. Nov. 24, 2008).
An out-of-court workout technique sometimes employed by a distressed business and its secured lender is the so-called "friendly foreclosure." By this procedure, the debtor and its secured lender arrange for a voluntary repossession of the debtor's assets by the secured lender and a pre-determined and substantially contemporaneous resale of the assets to a newly formed corporation, all under the auspices of Article 9 of the Uniform Commercial Code (UCC).
This article is the first in a series of articles discussing §363(n) and collusion in bankruptcy sales. Subsequent articles will discuss the fine line between collusion and collaboration, and will explore the application of the specific elements of a §363(n) action.
