Class 13
Bankruptcy, Spring, 2009
Sales of Assets
Randal C. Picker
Leffmann Professor of Commercial Law
The Law School
The University of Chicago
773.702.0864/[email protected]
Copyright © 2005-09 Randal C. Picker. All Rights
363

Use, sale, or lease of property
(b)(1)
The trustee, after notice and a
hearing, may use, sell, or lease, other than
in the ordinary course of business, property
of the estate … .
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363 (cont.)

Use, sale, or lease of property (cont.)
 (c)(1)
If the business of the debtor is authorized to
be operated under section 721, 1108, 1203, 1204,
or 1304 of this title and unless the court orders
otherwise, the trustee may enter into transactions,
including the sale or lease of property of the
estate, in the ordinary course of business, without
notice or a hearing, and may use property of the
estate in the ordinary course of business without
notice or a hearing.
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363 (cont.)

Use, sale, or lease of property

(e) Notwithstanding any other provision of this section, at any
time, on request of an entity that has an interest in property
used, sold, or leased, or proposed to be used, sold, or leased,
by the trustee, the court, with or without a hearing, shall
prohibit or condition such use, sale, or lease as is necessary to
provide adequate protection of such interest. This subsection
also applies to property that is subject to any unexpired lease
of personal property (to the exclusion of such property being
subject to an order to grant relief from the stay under section
362).
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Lionel

Core Facts
Lionel
files for C11
Holds as investment stock of Dale
Lionel owns 82% of Dale; other 18% owned
by public and stock traded on American
Stock Exchange
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Lionel
Creditor’s
committee pushes for sale of
Dale prior to plan of reorganization as
device to fund plan
Equity committee opposes preplan sale

Key Question
What,
if anything, limits the possible scope
of a sale under section 363(b)?
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Possible Approaches

Past Practice under the Chandler Act?
“Upon
cause shown”
Focus on “perishability” of the asset

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Sell the asset to protect against loss in value
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Possible Approaches

Achieve Consistency with C11 Protections?
Procedures?

Structured disclosure requirements for C11
plan
Price?

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“Reorganization under the 1938 Act was
often unfair to public investors who lacked
bargaining power”
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Evidence in the Case

Value of Stock
Not
a wasting asset
Financial expert says Dale stock has low
variance

CEO Testimony
Wants

to keep the stock
What should we make of this information?
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Court’s Conclusion

Holding
“There
must be some articulated business
justification”
“Good business reason”
Making creditor’s committee happy
insufficient and “ignores the equity interests
required to be weighed and considered
under Chapter 11”
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And the Laundry List

Consider A Non-Exclusive List:






“the proportionate value of the asset to the estate as a whole;
the amount of elapsed time since the filing;
the likelihood that a plan of reorganization will be proposed and
confirmed in the near future;
the effect of the proposed disposition on future plans of
reorganization;
the proceeds to be obtained from the disposition vis-a-vis any
appraisals of the property, which of the alternatives of use, sale
or lease the proposal envisions; and
most importantly perhaps, whether the asset is increasing or
decreasing in value”
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Sales Strategy

Key Question
How
should we sell assets in bankruptcy?
Before the plan is confirmed?
 Within the plan?
 What are the advantages and
disadvantages of those approaches?

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363 (cont.)

Use, sale, or lease of property
(f)
The trustee may sell property under
subsection (b) or (c) of this section free and
clear of any interest in such property of an
entity other than the estate, only if (1) applicable nonbankruptcy law permits
sale of such property free and clear of such
interest;
 (2) such entity consents;

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363 (cont.)
(3) such interest is a lien and the price at
which such property is to be sold is greater
than the aggregate value of all liens on such
property;
 (4) such interest is in bona fide dispute; or
 (5) such entity could be compelled, in a legal
or equitable proceeding, to accept a money
satisfaction of such interest.

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Sales Free and Clear

Hypo 1
Trustee
wants to sell property subject to a
security interest
Proposed sale price is $10,000; debt
secured by property is $8,000

Sale free and clear allowed?
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Sales Free and Clear

Hypo 2
Trustee
wants to sell property subject to a
security interest
Proposed sale price is $10,000; debt
secured by property is $18,000

Sale free and clear allowed?
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Sales Free and Clear

Hypo 3
Property
is piece of real estate subject to
city zoning rules
Property subject to zoning rule is worth
$10,000
Property value absent restriction is $15,000
Trustee seeks to sell for $15K free and
clear of zoning rule

Sale free and clear allowed?
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Sales Free and Clear

Hypo 4
Property
is piece of real estate subject to
federal environmental statute
Property is dirty; $100,000 will be required
to clean it up; clean property would be worth
$125,000; dirty property would sell for
$25,000
Federal law provides that any owner of the
property is obliged to clean the property
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Sales Free and Clear
Trustee
seeks to sell the property at auction
free and clear of clean up obligation
Proposes to give feds $100,000 unsecured
claim in the case

Sale free and clear allowed?
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TWA

Core Facts
9
Jan 01: American agrees to buy TWA
assets through bankruptcy
10 Jan 01 [not 02]: TWA files C11 (for the
third time!)
Feb 01: Sale Approved
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The Sale Order

Sec. 363(f) Free and Clear Provision
“the
free and clear delivery of the Assets
shall include, but not be limited to, all
asserted or unasserted, known or unknown,
employment related claims, payroll taxes,
employee contracts, employee seniority
accrued while employed with any of the
Sellers and successorship liability accrued
up to the date of closing of such sale.”
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The Sale Order

The Injunction
“Pursuant
to §105(a) and §363 all Persons
are enjoined from taking any action against
Purchaser or Purchaser’s Affiliates
including, without limitation, TWA Airlines
LLC, to recover any claim which such
Person had solely against Sellers or Sellers’
Affiliates.”
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The Challenge

EEOC
Contended
it had employment
discrimination claims that could be asserted
against TWA
Wanted to assert those against American
as successor to the assets
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The Challenge

Travel Voucher Program
Awarded
to TWA flight attendants as
settlement of a sex discrimination class
action
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Classifying These

Key Questions
Are
these “claims” under Sec. 101(5)?
Are these “interests in property” for the
purposes of Sec. 363(f)?
For 363(f)(5), could “such entity could be
compelled, in a legal or equitable
proceeding, to accept a money satisfaction
of such interest”?
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101(5)

‘Claim’ means—
 (A)
right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or
unsecured; or
 (B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to
payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed,
secured, or unsecured;
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The Voucher Claim

Four Versions
1.
They sue; win; receive damage award in
cash of $100,000; not paid; TWA files C11
2. Same as above, except TWA forced to
give them security interest in airplane
3. Same as 1 above, except award is to be
in services going forward, meaning
$100,000 in future TWA flights; not used up;
no SI; TWA files C11
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The Voucher Claim
4.
Same as 1 except two possible state
laws relevant
“Claims of this sort are not dischargeable in
a federal bankruptcy proceeding”
 “Claims of this sort attach to whomever
holds the assets that gave rise to these
claims”

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The EEOC Claim

How does this compare to the voucher
claim?
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