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The Inside Track: Section 363 Sales and the Advantages (and Disadvantages) of being the Stalking Horse in the US
09/04/2011
Larry B. Pascal

In United States bankruptcy proceedings, debtors are permitted to sell property of their estate free and clear of all liens, claims, and encumbrances pursuant to 11 U.S.C. § 363. This can be an excellent opportunity for potential purchasers, as they are able to buy these assets under the protection of a court order barring most creditors of the seller from asserting any of their claims against the purchaser. Because of the unique situation of the selling debtor, as well as the application of the Bankruptcy Code and the Bankruptcy Rules, there are a number of advantages and disadvantages which a buyer must consider when purchasing assets out of a bankruptcy. Several of the disadvantages can be mitigated or eliminated, however, if the buyer and the debtor agree to allow the buyer to serve as a “stalking horse” bidder for the sale. As a result, under the right circumstances buyers should consider serving as a stalking horse bidder if given the opportunity, given some of the advantages discussed in this paper.

Presented at Recent Trends in Restructuring and Distressed M&A in Latin America, a conference organized by Section on Insolvency, Restructuring, and Creditors’ Rights (SIRC) and The Latin American Regional Forum, International Bar Association, Beunos Aires, Argentina, September 4-5, 2011. To read the full paper, click on the PDF linked below.

PDF - Section_363_Sales_US.pdf