The economic downturn of recent years has provided opportunities for buyers to acquire operating assets at low prices, and those sales often occur through pending bankruptcy cases. This happens so frequently that Chapter 11 bankruptcy cases now typically involve the sale of all or significant parts of a business’s operating assets.
The appeal of buying assets through bankruptcy may appear obvious. With a stroke of a judge’s pen, assets are transferred "free and clear" of liens and other interests in the property acquired. Such sales, commonly known as "363 sales" because they occur under section 363(f) of the Bankruptcy Code, often provide great value and protection to buyers. Still, prospective buyers need to carefully assess what claims may attach to assets purchased through a 363 sale, even if a sale order contains broad provisions intended to insulate buyers from such liabilities. With this in mind, potential buyers should also consider alternative mechanisms for buying assets from financially distressed businesses.
