Bankruptcy Sales

Abstract

Bankruptcy courts have become fora for the sale of entire companies as going concerns, as well as for the liquidation of assets piecemeal. This book chapter teases out the advantages and disadvantages of conducting such sales under federal bankruptcy law as compared to state law. We first describe the forms that bankruptcy sales can take, and the contexts in which they occur. Next, we explore the concept of “bankruptcy-created value,” identifying the ways in which the federal bankruptcy process can create value over and above what can be realized through compulsory state processes. We then identify several procedural and governance-based concerns about all-asset sales, and discuss how our recent proposal, the Ice Cube Bond, would address them. Finally, we explore the related issues of credit bidding and the permissible scope of sale orders that declare assets to be “free and clear” of various kinds of claims and property interests.

Keywords: Bankruptcy, Corporate Reorganization, 363 Sales, General Motors, Chrysler, Sales Free and Clear, Secured Transactions, Article 9, Ice Cube Bond

JEL Classification: A33, D21, D22, D81