A liquidation of some or all of a business’s assets during a Chapter 11 bankruptcy is frequently called a “363 sale,” a reference to Section 363 of U.S. Bankruptcy Code. These sales are often completed quickly to comply with bankruptcy requirements and are designed to benefit the business by preserving value, satisfying secured lenders, or as part of a reorganization.
Having a qualified, experienced bankruptcy attorney who is familiar with the local rules of Wisconsin bankruptcy courts is critical to a successful Chapter 11 bankruptcy. A good attorney will guide a business through the bankruptcy process, developing a strategy to get the highest prices for the assets that are necessary to sell. That way, you can focus your time and energy on recovering and potentially restructuring to resume your business.
Understanding How a 363 Sale Benefits Your Business
Chapter 7 is a liquidation bankruptcy after which a business ceases to operate. Chapter 11 bankruptcy is designed as an opportunity for a business to reduce debt, work out a repayment plan with creditors holding secured and unsecured debts, and regain a foothold with a restructuring plan. Both chapters often involve selling assets to repay some debt or regain liquidity. This can be done through an advertised sale or auction, the 363 Sale.
Items usually liquidated through a 363 Sale include:
- Equipment
- Inventory
- Contracts
- Intangible assets
Guiding you through the process is an experienced bankruptcy attorney whose role involves:
- Filing for bankruptcy. Your attorney will help compile the documentation necessary, including records of secured and unsecured debts, account balances, and pending contracts. Wisconsin generally follows U.S. Bankruptcy code. Provide your business agreement as well to ensure the agreed-upon procedures are followed and the right people are involved in the decision-making process.
- Identifying assets to sell. Putting together a quick 363 Sale can relieve creditor pressure, improve liquidity, and potentially create interest from investors or new partners. The sale must be approved by the court, and the winning bidder is also chosen by the court. This arm’s length transaction provides the buyer with assets that are “free and clear” of any creditor’s claims or liens, subject to court approval.
Creditors may object to a sale that they believe undervalues the assets or cuts off their ability to object. The court requires adequate notice and appropriate sale procedures.
- Developing a restructuring plan. The 363 Sale is part of a restructuring plan, but just the beginning. A robust plan, developed in conjunction with your attorney, sets up your business for continued operation or for sale. This plan is presented to the Chapter 11 trustee and to a potential committee of creditors for input and direction.
- Discharge. After your company’s asset sale takes place and secured creditors are paid off, your business continues according to the approved restructuring plan. Upon confirmation of the plan the trustee discharges the bankruptcy.
Potential pitfalls in a 363 Sale include contracts that don’t transfer and creditors who object to the terms of the sale. If assets are priced too low, creditors can complain to the court and attempt to have the sale nullified. Also be sure to examine the fine print in contracts to ensure that they are transferable assets.
In addition to federal bankruptcy rules, there are Wisconsin-specific concerns to overcome, including allowed exemptions, local creditor’s committees, trustee practices that are specific to Wisconsin bankruptcy courts, homestead protections that are more limited than in many other states, and creditor remedies.
Be alert for:
- Potential state tax implications for the sale of certain assets. These include excise and sales tax. The 363 sale could also impact your income tax filing.
- State laws that can impact transferring title of real property, and local contract assignment rules.
Your Partner in Bankruptcy, Recovery, and Business Resumption
Finding an attorney experienced in the intricacies of Wisconsin business bankruptcy can be as simple as consulting Kerkman & Dunn, where decades of combined experience will be put to work for you. Call for a consultation today.
