By Melissa B. Jacoby (University of North Carolina – Chapel Hill) and Edward J. Janger (Brooklyn Law School)
Bankruptcy courts have become fora for the sale of entire firms 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. We suggest that our recent proposal, the Ice Cube Bond, might address concerns about sales of substantially all assets by withholding a portion of the sale proceeds. To recover the withheld funds, claimants would have to establish that the sale did not harm the bankruptcy estate and that they would be legally entitled to the funds under the normal bankruptcy priority rules or pursuant to an agreement reached after the sale. To conclude, 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.
The full chapter may be found here.
This draft chapter has been accepted for publication by Edward Elgar Publishing in the forthcoming Corporate Bankruptcy Handbook, edited by Barry Adler, due to be published in 2017.