Squeezing the Most Value from Distressed Assets: Is Chapter 11 Always the Best Way?
It is perhaps stating the obvious that Chapter 11 of the US Bankruptcy Code offers a well-known and very flexible means of extracting the most value from distressed assets.Â But in these economic times, it is worth remembering that Chapter 11 is by no means the only avenue for addressing insolvency â€“ nor is it always the best . . . or most appropriate.
Bankruptcy (or â€śSection 363â€ť) sales have been a time-honored and tested means of moving distressed assets quickly and cost-efficiently from buyer to seller.Â But the lack of credit necessary to fund the transition period required for such sales during the recent downturn, combined with a handful of recent appellate decisions which cast doubt on the validity of contested sales,Â serve as reminders that other transactional structures sometimes work just as well â€“ or even better.
The folks at Turnaround Management Association (TMA) released a spate of articles last week which illustrate the point: Two of TMAâ€™s pieces (one on ABCâ€™s and Receiverships and one on alternative sale structures for distressed acquisitions) compare and contrast federal bankruptcy proceedings with other means of optimizing the transfer of distressed assets. A third focuses on â€śstrict foreclosuresâ€ť (or â€śArticle 9 salesâ€ť).
All three are well worth a read.