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The Advantages of a Section 363 Bankruptcy Sale

The Advantages of a Section 363 Bankruptcy Sale

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The major components in a Chapter 11 bankruptcy case in the United States include the designation of a plan for reorganization of the debtor’s assets outside the ordinary course of business, and the subsequent sale of those assets. Section 363, as codified into the US Bankruptcy Code that became effective in 1979, offers flexibility for attorneys by allowing them to create a customized plan and a timetable to answer the needs of each individual debtor seeking to sell off business assets.

The comparative speed with which a distressed company can sell its assets under Section 363 can be a strong incentive to take advantage of its provisions. In recent years, a number of large corporations—Lehman Brothers, Chrysler, and General Motors among them—have opted to sell a substantial amount of their assets under Section 363 during their bankruptcy proceedings, rather than selling them pursuant to a Chapter 11 restructuring plan filed at the end of the case. A Chapter 11 restructuring might require several years, in some cases.

When debtors and their attorneys elect to sell off assets under Section 363, the quicker sale cycle provides a number of benefits. “Wasting” assets—those whose value is rapidly shrinking—can be sold at the earliest possible point, making Section 363 sales more attractive as an option. Section 363 sales can also minimize the administrative costs associated with long-term restructuring plans.

An added point that highlights the flexibility of a Section 363 sale is that it can take place at the beginning, or at any other time, during the Chapter 11 restructuring process. In addition, in contrast to a reorganization plan that requires approval from creditors and other stakeholders, a Section 363 sale only needs the approbation of a bankruptcy court.

Section 363 sales are not a means of circumventing the Chapter 11 reorganization process. However, authorities in the field of bankruptcy law see the trend toward Section 363 sales continuing in the future, as more corporations are attracted by the opportunity to dispose of assets more quickly.

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