363 Flashcards
How does every 363 sale start?
Trustee or Dip motion
What are the two ways that cash collateral use can be approved?
consent of the creditor with the security interest or judicial approval (can be prohibited/conditioned in adequate protection)
When does use/sale/lease of property require court approval?
Only if outside ordinary COB
Can a 363 sale be reversed on appeal?
No (as long as in good faith and no stay of the sale
Why would a creditor want to force a 363 sale
to avoid reinstatement; put an end to the extend and pretend strategy; solves the valuation problem; eliminates management’s ability to increase risk; DIP lender conditions
How can creditors maneuver for a 363 sale if they can’t propose one?
convert to a ch 7
Try to replace the Dip with a trustee (fraud/gross mismanagement)
negotiate a plan under 1129 that contemplates a sale of the firm
what is the statutory guidance for a judge evaluating a motion for a 363 sale?
No statutory guidance. See Lionel Braniff and Continental
How does credit bidding under 363k affect the sale?
It saves creditors the effort of finding outside financing for a bid, but may discourage outside bidders because a dollar of bankruptcy claim is rarely worth a dollar cash
What are the cons of discouraging 363 sales?
The sale will still happen, it will just take longer and allow those against it to extract more value (what happened in Lionel)
Pros of discouraging 363 sales
encourages negotiation to get a 1129 plan
Sales limit the ability to structure an effective plan
Might effectively be the end of the firm
What is the Lionel requirement?
There has to be a valid business justification for the sale (low bar not as relevant any more)
What is the Braniff Airways requirement?
No sub rosa plans in 363 sales- the sale must actually be a sale of assets for cash, there can’t be a bunch of earmarks. If there is a high degree of creditor/shareholder carry over, there is a higher chance the court will invalidate the sale as a subrosa plan
What is the Continental requirement?
The party objecting to the 363 sale must name some particular protection that they are being denied in the sale. Favorites are 1126 (ability to vote down the plan) 1129a7 (do no worse than in liquidation) 1129b2 (fair&equitable unfair discrimination) or 1129a8 (plan would not have gotten enough consent
The court will then fashion a remedy
What are possible remedies for a party objecting under Continental?
The remedy could be a market test as in La Salle (should be done on the assets only) or a judicial valuation
Why was Chrysler a weird bankruptcy?
It probably should have failed Braniff as a sub rosa plan because of the high degree of carryover.
It had a critical supplier angle to it.
Secured creditors were probably denied a valid vote because of the bailouts and a rigged market test
Secured creditors were screwed in the sale
