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Over the past several years, financially distressed companies have increasingly used bankruptcy as the preferred method to sell significant assets or entire businesses. Section 363 of the Bankruptcy Code allows a chapter 11 debtor to sell assets outside the ordinary course of the debtor’s business, clear of existing liens and claims, if the debtor demonstrates a good business reason for the sale. Depending on the facts and circumstances, however, a sale of distressed assets via an out-of-court transaction may be the best path forward.

Adequate protection is one of the central protections provided to secured creditors by the Bankruptcy Code, and it is designed to protect against any diminution of the value of the secured creditor’s lien during the course of a debtor’s bankruptcy proceedings. Adequate protection must be provided when, among other circumstances, a debtor sells a secured creditor’s collateral pursuant to Bankruptcy Code § 363.

Similar to domestic bankruptcy cases, in chapter 15 cases the sale or disposition of property located in the U.S. may be accomplished pursuant to asset sales under § 363 of the Bankruptcy Code, Rule 9019 settlements, or a combination of the two.[1] In a chapter 15 proceeding, the foreign representative must provide notice to all creditors regarding settlements and asset sales and obtain timely approval from the U.S.

Editor’s Note: The following article, “Spanish Peaks’ Reinvigoration of the Precision Industries Debate: Rejection in the Context of a § 363 Sale Free and Clear of Commercial Leasehold Interests” won the prize for third place in the Tenth Annual ABI Bankruptcy Law Student Writing Competition. Mr.

This article examines certain key provisions in asset-purchase agreements that practitioners will want to pay attention to when purchasing assets in bankruptcy sales.

Good-Faith Deposits

A recent decision from the U.S. Bankruptcy Court for the District of Montana highlights the limits of the term “interests” under § 363(f) of the Bankruptcy Code and the limits of “good faith” under § 363(m). In In re Mountain Divide LLC, Case No. 16-61015-11 (Bankr. D. Mont. 2016), the debtor filed a chapter 11 petition and, shortly thereafter, filed a motion to sell substantially all of its assets to Deep River Operating LLC and Future Acquisition North Dakota LLC (FAC). Deep River and FAC were considered a joint stalking-horse bidder.

Federal policy weighs heavily in favor of protecting the finality of sale orders in bankruptcy.[1] “It has been held that 11 U.S.C. § 363(m) ‘reflects the salutary policy of affording finality to judgments approving sales in bankruptcy by protecting good faith purchasers, the innocent third parties who rely on the finality of bankruptcy judgments….