Today we hear more and more of Bankruptcy sale. Web see Companies are filing for chapter 11 and chapter 7 relief.  The latest bankruptcy sale that has made headlines is the General Motors one. The reason why companies apply for bankruptcy sale is that they are left with no other option, as they do not have enough capital or finance to run the huge operating cost of the business. In order to pay off the creditors they have to sell most of their assets to generate funds.

Bankruptcy sale is a wonderful opportunity for buyers who will be able to obtain distress assets at a very attractive pricing. The buyer will be able to obtain a transfer title to the property or asset free and clear from all pre-petition liens and other interest without the sanction of the possessors of the interest. The buyer and pick and choose the debtors contracts and leases that he wants to undertake. Another important thing about this process is that the assets and sale process can be structured in any way that makes commercial sense. It can be done through auction, private sale, lot or bulk sale, etc.

In the chapter 11 cases, the debtor does not act in Vacuum. He has with him a committee of unsecured creditors to play an active role in the whole sale process. They play a leading role in marketing the sale, instituting the bidding process, obtaining the acceptance and court endorsement for an offer received for the sale, etc. They are a body that acts in the interest of all the general unsecured creditors. Their work is to ensure that sale goes for the maximum value for only then will benefit. For any asset sale to go through it must get an approval from the bankruptcy court after notice and hearing. In many cases we see that the approval from court does not come for the maximum dollars but highest and best offer.

The assets can be marketed in any way possible to garner the maximum and the best offer. There are no specific rules as such that one has to follow to market the distress assets. Usually the debtor-in-possession ("DIP") and the creditors committee will try generate bids among private contacts or through advertisement. A buyer who is interested in the asset will make a contingent offer or provide a letter of intent, which outlines the parameter of eth acceptable deal. Most of the time, we see that, the initial bidder will want to put a restriction on subsequent biding on the asset. The DIP or the creditor committee will try to oppose it, as they want as much competition to build a higher value for the asset. The compromise that both the party comes to is what is presented in the bankruptcy court for approval.

Once the buyer and the DIP have agreed upon the sale then the DIP files a motion on twenty-day notice to creditors and parties in interest. If no objection is raised it goes to court for approval. If objection is raised the court will keep a hearing to determine if the bankruptcy sale is in the best interest.